More Stories

Informist, Friday, Apr. 11, 2025

 

By Aaryan Khanna and Pratiksha

 

MUMBAI – The ongoing massive liquidity infusion by the Reserve Bank of India is expected to allow the central bank to take delivery of its forward dollar sales and trim the size of its book, which stood at a record high of $78.69 billion at the end of February on a net basis.

 

"We have a better idea of the liquidity surplus that the RBI envisions after the MPC policy decision on Wednesday. As further OMOs (open market operations) or other liquidity operations are conducted down the road, it should give the RBI room to take delivery on its outstanding short dollar position," said Sameer Karyatt, executive director and head of trading at DBS Bank India.

 

On Wednesday, Governor Sanjay Malhotra said the RBI was looking to keep the liquidity surplus in the ballpark of 1% of banks' net demand and time liabilities. On Friday, the central bank announced a long-term repo operation of INR 1.50 trillion and OMO purchases worth INR 400 billion for next week, in addition to those already announced earlier this month. These measures, in addition to the two OMO purchase auctions of INR 200 billion each already scheduled later this month, are set to add to the liquidity surplus, with the RBI absorbing a net INR 1.86 trillion on Thursday.

 

The size of the RBI's net short outstanding dollar/rupee forward book has only been growing since March last year. On a gross basis, the central bank had short positions worth $88.75 billion as at the end of February, of which $43.64 billion is to mature by the end of May.

 

To be sure, the RBI may choose to take stock of evolving conditions before making a significant change to its onshore forward book, market participants said. "I think they (RBI) are already unwinding some of their short positions in the NDF (non-deliverable forwards market) segment. But the onshore bit will take time since it impacts liquidity directly," a treasury head at a state-owned bank said. "For now, I don't think they will touch anything on the onshore (forward) book, and maybe wait to see how the whole liquidity scenario pans out."

 

The RBI seems to be in a hurry, though, and is on track to infuse INR 4 trillion of durable liquidity in the first four months of 2025 just through its OMO purchases of Indian government bonds.

 

"I think for the liquidity bit, they (RBI) are going to continue most of their injections through the OMO route," Dhiraj Nim, economist and FX strategist at ANZ Bank India, said. "Now that you are seeing that these global risks are actually US yield positive and a classic risk-off is setting in, I think they would want to keep domestic markets calm and OMO could be a very easy way to do that."

 

After a relatively slow start, OMO purchases have clearly emerged as the RBI's preferred route of durable liquidity infusion after conducting dollar/rupee buy/sell swaps worth $25.20 billion earlier this year. However, more of these swaps are likely in the offing, though serving a different purpose.

 

"The RBI is likely to conduct another $20 billion-$25 billion of buy/sell swap auctions in 2025-26, with the aim of extending the maturity of its forward book," said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. "The RBI can let swaps of up to three months mature instead of rolling them over consistently, which would prevent the forward book ballooning from February-end levels."

 

As such, the RBI's outstanding sales of dollar/rupee forward contracts are likely to have remained broadly unchanged or even fallen slightly from February as it stopped adding to its short bets in the non-deliverable forwards segment and even opted to square-off positions rather than roll over maturing contracts, according to forex traders, who see the forward book being $70 billion-$80 billion short on a net basis at the end of March.  End

 

US$1 = INR 86.04

 

Edited by Ashish Shirke

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.