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Informist, Friday, Jun. 13, 2025

 

By Pratiksha

 

MUMBAI - The Reserve Bank of India has trimmed its net short outstanding positions in the offshore non-deliverable market sharply in the recent months, reflecting a change in the foreign exchange intervention strategy under Governor Sanjay Malhotra, according to NDF market participants.  

 

While the Indian central bank does not disclose figures relating to its offshore interventions, the RBI's net short outstanding positions in the NDF market are estimated to be $2 billion-$5 billion, dealers said. Net outstanding sales of dollar/rupee forward contracts, which comprise offshore NDF as well as onshore forward positions, were $72.58 billion at the end of April. The central bank doesn't disclose the break-up of its forward positions.

 

"Their (RBI's) activity in NDF has been pretty dull. I am sure their NDF book has come down signficantly 

now," a dealer at a foreign bank said. 

 

The massive drawdown in the central bank's offshore NDF book is noteworthy as the RBI only last year used this intervention route very actively to curb a sharp fall in the rupee. So much so, that the RBI's net short outstanding position in the NDF market was estimated to be $60 billion-$70 billion at the end of November, Informist had reported citing sources.  

 

The rupee was under extreme pressure in November, hitting successive record lows against the dollar, after Donald Trump won the US Presidential elections, prompting heavy intervention from the central bank to support the Indian currency. 

 

However, the intervention approach under Malhotra seems to be hands-off in nature, with the RBI now allowing flexible movement in the exchange rate. This likely helped the RBI cut down its short NDF book, dealers said. "The rupee is moving in both directions much more freely now. They (RBI) are not very active on both the spot and NDF front now," a dealer at a private-sector bank said. "I don't think they will inflate the NDF book like this in the near future."

 

After hitting a record high of $88.76 billion at the end of February, the RBI's net short outstanding dollar/rupee forward book fell by $16.18 billion at the end of April, primarily owing to the apex bank winding down its positions in the offshore segment considerably. 

 

Going ahead, market participants expect the RBI's short forward book to shrink further, thanks to the central bank's bumper liquidity infusion in the form of a 100-basis-point cut in the Cash Reserve Ratio. The RBI last week announced the CRR will be lowered to 3% of banks' net demand and time liabilities in four tranches starting September. The CRR reduction is expected to infuse liquidity of INR 2.5 trillion into the banking system by December.  End

 

US$1 = INR 86.08

 

Edited by Vandana Hingorani

 

 

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