Rupee: RBI takes futures, NDF route to hedge Rupee, forex

The central bank’s calibrated intervention in currency derivatives markets on Tuesday saved the rupee from record lows, with the Reserve Bank (RBI) deviating from its traditional script of spot selling dollars to preserve foreign exchange reserves seen as crucial to guaranteeing macroeconomic stability.

The central bank is said to have sold dollars on the futures market and offshore non-deliverable futures (NDF) markets to avoid a drawdown for now of its foreign exchange reserves which are currently just shy of the $600 billion.

“We are witnessing a mix of tracks in the central bank’s intervention strategy as the rupee falls,” said Bhaskar Panda, Executive Vice President,

. “Such a strategy may be aimed at protecting foreign exchange reserves for now amid global turmoil.”

The RBI did not respond to inquiries from ET on the matter.

To be sure, trading in the futures and NDF markets is not entirely new to Mint Road, but these markets have not been the mainstay of the intervention plan for monetary stability in India.

The rupee gained 0.19% to close at 77.33 on Tuesday. The local unit was the third best performer in Asia, behind the Philippine peso and the Thai baht.

The RBI may also have sold some dollars on the spot market on Tuesday through two state-owned banks. Dollar sales on the futures and NDF markets together may be in the range of $1-1.7 billion over the past two days, and spot market dollar sales could be in the region of around $500 million. said a veteran forex broker from a large state. -Own bank.

The rupee had fallen to a new low on Monday. She closed at 77.46 per dollar on Monday, breaking her old record of 76.97 reached on March 7. The next crucial level for the coin is seen in the range of 78-78.50 per dollar.

Focus on foreign exchange reserves

“We haven’t seen any significant intervention in the spot market recently with the rupee falling to an all-time low,” said Anindya Banerjee, a currency analyst.

Values. “The RBI likely opted to protect foreign exchange reserves, resulting in interventions in futures markets and offshore NDFs.”

Spot market interventions will usually immediately deplete dollar reserves as the central bank sells dollars to receive rupees. However, the obligation to deliver dollars can be advanced through call/offer swaps at a later date.

Similarly, in the NDF market, a local bank has to settle only the spread in exchange rates (between the reserve rate of the contract and the rate at the expiration date of the contract) in dollar terms at expiration. of the contract.

The RBI now intervenes in the NDF with local banks acting on its behalf through GIFT City, an international special economic zone.

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