The net book was $65.2 billion short in the forwards market as of May, Bloomberg calculations from RBI data showed. This compares with $72.6 billion as of end-April and a record of $88.8 billion in February.
The Reserve Bank of India has been extending the maturity of its forwards book to the above three-month segment. Bulk of the dollar repayments due stood in the three-month to one-year bucket at $30 billion. The higher than one-year category was at $20.1 billion due to buy/sell swaps conducted by the RBI.
“The RBI reduced the short dollar forward positions in May in line with the trends observed in the recent months,” said Kanika Pasricha, chief economic adviser at Union Bank of India. “This has served the purpose of further limiting the FX vulnerability via addressing the elevated short forward position due for maturity in the next 12 months.”
The drag from FX forward maturity is not very concerning from a liquidity standpoint as the average system liquidity is likely to stay comfortable at 1% of net deposits in coming months, she said.
The central bank has scaled back offshore intervention that it had extensively used last year to prop up the rupee, Bloomberg News reported earlier this month.A negative forward book means that the central bank either has to repay the dollars back to banks when the contracts mature or roll them over. The central bank’s reserves may decline if it pays back from its books, and it also takes out rupee liquidity from the banking system.The central bank is not ‘unduly concerned’ about the short dollar book, Governor Malhotra said at the June policy. Forex reserves have bounced back to nearly $700 billion amid the dollar’s weakness and the authority’s dollar purchases.
“If there are opportunities and we can build reserves, that will happen, but that is not something which we will be unduly bothered about,” Malhotra said.
The short book up to three months stood at a cumulative $15 billion, the data showed.
