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Informist, Wednesday, Dec. 18, 2024

--Dealers:RBI likely asked some bks to not bet against rupee in offshore NDF 
--Dealers: RBI likely intervening verbally in NDF market to support rupee 

By Gowri Lakshmi, Kabir Sharma and Pratiksha
 

NEW DELHI – The Reserve Bank of India likely asked some banks on Wednesday not to place large bets against the rupee in the offshore non-deliverable forwards market to keep the domestic currency from falling below the psychologically crucial level of 85 per dollar, dealers said. The rupee, which fell to a lifetime low of 84.9575 during the day, settled at 84.9525 a dollar on Wednesday. 

The central bank likely nudged some state-owned and private banks to stop taking large positions against the rupee in the offshore NDF market, currency dealers told Informist. "I think the arbitrage positions that are building in the offshore may have pushed them (RBI) to do this (verbal intervention). Anyway, their (RBI) short positions have increased in the offshore, so they may not want more," a dealer at a state-owned bank said on the condition of anonymity. Some dealers said the communication by the central bank was made early in the morning before the domestic spot market opened at 0900 IST via phone call. 

Since last week, the rupee has been under pressure as banks purchased dollars immediately after the onshore market opened to take advantage of the arbitrage opportunity with the NDF rates, dealers said. "We heard they (RBI) asked banks to stop buying (dollars) in NDF. We also got a call for the same in the morning," another dealer at a state-owned bank said.

Apart from verbal intervention, the central bank has been actively intervening in the spot and NDF market through dollar sales to prevent a sharp depreciation in the rupee. The RBI typically intervenes in the offshore NDF market to prevent a spillover of the speculative bets building in the offshore currency market to the onshore market.  

But over the last two weeks, the central bank has started trimming down its NDF book, where its outstanding dollar sales were said to have reached as high as $80 billion last month. It has no longer been rolling over its maturing NDF contracts, which has contributed to a rise in forward premiums and weakness in the rupee. The latest verbal intervention by the central bank also marks a shift away from its earlier strategy of actively selling dollars in the NDF segment, dealers said. 

The RBI's verbal intervention in the offshore NDF segment also comes at a time when India's foreign exchange reserves have fallen to an over five-month low of $654.86 billion in the week ended Dec. 6. The foreign exchange reserves have now declined by over $50 billion from the record high of $704.89 billion in late September. 

The Indian unit has also been under pressure owing to subdued foreign fund inflows, a strengthening dollar index and strong dollar demand from importers. India's merchandise trade deficit rose to an all-time high of $37.84 billion in November. In a similar move last month, the RBI had asked some state-owned, private and foreign banks to trim large bets against the rupee in the spot market to keep the domestic currency from falling sharply.  End

US$1 = INR 84.95

Edited by Saji George Titus

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