The Reserve Bank of India’s net short position in its forward dollar book hit a record $200.06 billion at August’s end, reflecting a significant shift in foreign exchange strategies driven by inflows, with potential implications for market intervention.
The Reserve Bank of India’s outstanding net short position in its forward dollar book climbed to a record $200.06 billion at the end of August, up sharply from $136.77 billion a month earlier, according to data released by the central bank. The jump reflected a sizeable build-up in longer-dated contracts and came after a period of heavy foreign-currency inflows linked to the RBI’s deposit swap measures.
The August figures showed short positions of less than one year at $55.15 billion, compared with $47.66 billion in July, while contracts maturing in more than one year nearly doubled to $176.57 billion from $91.54 billion. Long dollar positions also rose, to $31.66 billion from $2.43 billion, although these were all due within one month. After offsetting those long positions, the RBI’s net short position in contracts maturing within one year narrowed to about $23.5 billion from $45.2 billion in July.
Market participants cited FCNR(B) inflows as a major driver of the increase, referring to foreign currency non-resident bank deposits used by overseas Indians. One trader told Business Standard that the central bank had also allowed some positions to roll off and suggested that, once inflows are fully accounted for, the longer-dated short book would have been even larger. The same participant said the RBI had been carrying out sell/buy swaps, including in September, which would in practice reduce the total short position.
The rise has prompted speculation that the RBI may keep relying more on swaps and less on direct spot intervention in the foreign exchange market, as much of the money raised through the FCNR(B) facility will need to be repaid over the next three to five years. A treasury head at a private bank told Business Standard that the RBI’s window had now closed and that August may have marked the peak in the short position. Separate reports from Brecorder and Moneycontrol also said the central bank’s net forward liabilities hit roughly $200 billion in August and are likely to ease as it unwinds positions through dollar-rupee swaps and manages rupee liquidity.
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