Mumbai: The net short forward position of the Reserve Bank of India (RBI) in the currency market widened to a record high of $106.6 billion in May, up from $95 billion in April, pointing to sustained central bank interventions to defend the rupee after it continued to hit successive lifetime lows during the month amid volatility stemming from the West Asia conflict.
The rupee had traded at a record low of 96.96 per dollar on May 20, and multiple material interventions from the RBI back then prevented the currency weakening past the psychologically significant 97 per dollar mark.
Net short forward position widens to $106.6 b in May, reflecting sustained intervention amid heightened volatility
On Tuesday, the rupee closed modestly weaker at 94.66, versus its previous close of 94.54 per dollar, as a stronger dollar index and mild foreign investor outflows weighed on the currency, traders said.
The appreciation seen in the rupee from its record low levels comes on account of capital inflows, after the RBI and the government announced coordinated measures to attract foreign inflows. Market participants expect inflows of $40-70 billion via the ECB and FCNR(B) schemes.
There is some sort of consensus on what the RBI would likely do with the hefty inflows that will come in. One is to retire its net short forward position book and the other is to build up reserves that are currently at $672 billion, down from its peak of $728 billion in late February.
