RBI's forward book slides into negative zone after three years
RBI) foreign exchange reserves has dropped into negative territory after three years while the central bank seeks to balance the need for headline external buffers with liquidity drainage in a cash-strapped banking system.
The RBI's net outstanding forward book — it represents proprietary dollar sales or purchases for a future date — turned negative in October. Mint Road is obligated to sell $14.6 billion dollars, latest data showed.
The last time the forward book was in negative zone was in July 2020.
The decline in the forward book shows the RBI's shift away from spot market interventions to other segments as it seeks to shield the rupee from excessive volatility amid global currency market swings. Analysts said the forward interventions could also have been driven by the RBI's desire to ensure the headline forex reserves do not fall too much, as the chest of reserves has played a major role in discouraging speculation against rupee.
«Indeed, in spot market RBI net sold only $0.3 billion in October, which masks large gross dollar sales of $37 billion and gross dollar purchase of $36.7 billion.
RBI's FX intervention behaviour is aimed at limiting volatility in Indian rupee and preserving FX reserves,» said Gaura Sengupta, economist, IDFC First Bank.
Currency traders said that the swap transactions which brought RBI's forward book down in October have likely continued since then. Dollar sales are employed when the rupee faces depreciation against US currency.
Over the past couple of months, the rupee has hovered near record lows.
In September, the net outstanding forward book was positive by $4.6 billion, implying the RBI had pledged to purchase that sum. The central bank's net dollar sales in spot market clocked in
