With the help of RBI Forward Market to protect Rupee from depreciation while retaining foreign exchange

The country’s central bank is intervening in the futures market to check the depreciation of the rupee against the US dollar and maintain its hard-earned forex reserves. According to DBS Bank estimates, the Reserve Bank of India may reduce its forward-dollar book from 12 billion to 15.15 billion. At the end of April, his forward-dollar […]
 


With the help of RBI Forward Market to protect Rupee from depreciation while retaining foreign exchange

The country’s central bank is intervening in the futures market to check the depreciation of the rupee against the US dollar and maintain its hard-earned forex reserves. According to DBS Bank estimates, the Reserve Bank of India may reduce its forward-dollar book from 12 billion to 15.15 billion. At the end of April, his forward-dollar book was valued at ₹64 billion. According to Standard Chartered, the banking regulator showed significant intervention through the futures market.

According to Standard Chartered, the steps taken by the central bank indicate that it is doing everything possible to contain the fall of the rupee. Since the beginning of this month, the rupee has been continuously going to a new low. Which is challenging the country to accelerate import inflation. The premium on one-year dollar-rupee forwards has come down to 3 per cent due to RBI’s current intervention strategy. The banker said this is the first time in the last decade that it has seen such a low level. An MD of a forex company says whenever the rupee is under pressure, they prefer to liquidate outstanding forwards rather than intervene in the spot market by using reserves. He said that these forwards were originally created to mitigate the effects of current events. Imaging-market currencies are under pressure due to aggressive interest rate hikes by the US Fed. Fund flows from developing countries are shifting to the US as rates in the US have increased. The Indian stock market has also seen pressure on the rupee due to the record selling of foreign institutional investors. The rupee has depreciated by more than 5 per cent against the dollar this year. On Wednesday, it had reached a historic low of 78.40.

Apart from the large forward dollar book spot reserve, it provides an additional buffer in the hands of RBI. Bank Governor Shaktikanta Das said the central bank will take a multi-pronged approach to keep dollar outflows from the country to a minimum. This strategy usually works accordingly. For example, the RBI sells the dollar and buys the rupee, intervening to prevent the rupee from depreciating in the spot market. Which reduces interbank liquidity. On a later spot settlement date, they try to mitigate the effect of liquidity through buy-sell swaps in forwards. Considering the massive outflow of ₹27.27 billion from the Indian stock market in the current calendar, most strategists have a bearish strategy for the rupee. According to the estimates of Bank of America, the rupee will reach 81 against the dollar by the end of the current calendar. According to the Head of India Financial Markets, Standard Chartered Bank, the dollar is showing strength in the current global scenario. Whereas commodity prices are seeing an uptrend. Which can have a negative impact on the Indian current account deficit. Seeing this, we have a negative opinion about the rupee.