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RBI’s foreign exchange interventions are primarily dependent on forwards

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News Tech: The Reserve Bank of India (RBI), a net buyer in the forex market in April, has cut its long positions in the futures segment, the central bank said in a bulletin. The RBI is on both sides of the spot market, intermittently selling and buying dollars. This shows that central banks are closely monitoring exchange rates due to global volatility. April was perhaps his last streak of relative calm after the tumultuous month of March, with dollar outflows hovering around $3 billion.

Note that in March and April the central bank conducted buy-sell swaps with banks to sell dollars while agreeing to buy them back through futures contracts at a later date.
This was done to extend an immediate expiry futures contract by extending the expiry. With large futures accounts, central banks may need to continue buy/sell swaps to offset the impact of futures contracts on exchange rates. With the RBI offering his intervention two months behind, data over the next few months show a range of RBI swaps or outright dollar sales.

Against this background, RBI’s buyer status looks temporary and tactical. The central bank has been selling the dollar steadily since May to slow the rupee’s decline, according to forex traders. After falling less than 1% in April, the currency has since fallen 2%. More importantly, the RBI’s foreign exchange interventions are heavily biased towards futures contracts.

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