Domestic and global headwinds challenge RBI's forex policy

MUMBAI: The Reserve Bank of India's (RBI) efforts to slow the rupee's decline have been relentless, but its already-stretched strategy is now challenged by weak economic growth, tepid foreign inflows, and a buoyant dollar's threat to Asian currencies, especially the Chinese yuan.

- Reuters

The dollar index has rallied more than 3% since Donald Trump won the US presidential election on November 5. The rupee fell just 0.8% at that time, making it the second-best among major Asian currencies, largely due to the RBI's intervention. This intervention has stretched across segments: buying and selling dollars in the onshore spot and forward markets, taking positions in local currency futures and in the non-deliverable forward (NDF) market.

"The amount of intervention has been quite substantial... We can say intervention is a little bit stretched but, at the same time, it is a call that the RBI must take," said B. Prasanna, head of global markets at ICICI Bank.