RBI cuts dollar positions and infuses rupee liquidity
Synopsis The Reserve Bank of India has reduced its net short dollar positions in the forward market, dropping to $52.4 billion in April from $78 billion in February. To counter the impact, the RBI is infusing rupee liquidity through open market operations. Mumbai: The Reserve Bank of India (RBI) has started cutting its forward positions and countering its impact by infusing durable rupee liquidity via open market operations (OMOs). The central bank's total net short dollar position in the forward book fell to $52.4 billion in April from a peak of $78 billion in February, latest data showed.
ADVERTISEMENT Most of the positions-72% of the total book-were in the three months to one year segment, with forwards of $37.7 billion, while forwards in up to three months stood at $14.7 billion. "The larger than expected OMOs which happened was because the RBI was expecting these forwards to mature and not be rolled over," said Kanika Pasricha, chief economic advisor at Union Bank of India. The RBI's spot interventions in the forex market entail changes in domestic liquidity conditions, which may require "sterilisation" of such interventions, said the central bank's annual report published on May 29.
Expectations of maturing of positions changed as system liquidity turned surplus from April. Economists are expecting short positions of up to one month to mature, from earlier expectations of rollovers.
"We can see that about $7.4 billion of positions are in the 'up to one month' tenure, and are due for maturity in May. My expectation is that the RBI will allow this $7.4 billion to mature next month," Pasricha said. This, economists suggest, is the reason why the central bank continued to conduct OMOs, especially in May, despite surplus liquidity.
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