The Reserve Bank of India’s (RBI’s) outstanding net short dollar position in the forward market surged to a new record of $239.2 billion at the end of September, from $200.06 billion at the end of August, according to the latest data released by the central bank.
While net shorts with a maturity of more than one year increased to $199 billion from $176.6 billion, those in the three-month to one-year tenor stood at $13.22 billion at the end of September.
The sharp rise in the net short position in recent months was driven by a special concessional swap window for banks to mobilise foreign currency non-resident (bank), or FCNR(B), deposits, which was operationalised on June 8. Although the window closed on August 31, banks were allowed to enter into swaps under it until September 11.
“The RBI’s recent slew of foreign exchange measures and tighter market access have steadied the spot market, with the rupee rebounding around 2 per cent from its recent low of 96.85 per dollar,” said Madhavi Arora, lead economist at Emkay Global. “This heavy short position also limits the RBI’s room to cap severely dislocated and elevated forward premia.”
“We see the recent easing in forward rates as a partial unwinding of the panic premium, not a decisive decline. With a net short forward book of more than $200 billion, the RBI has limited room to cap premia,” Arora added.
Banks have mobilised a whopping $133 billion in FCNR(B) deposits through the special swap window, which was opened to strengthen India’s balance of payments and incentivise capital inflows amid pressure on the rupee. The pressure stemmed from surging crude oil prices following the conflict in West Asia, which began in late February.
