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Business Recorder
04-07-2025
- Business
- Business Recorder
India's $700 billion plus FX reserve pile, leaner forward book bolster rupee shield
MUMBAI: India's foreign exchange reserves topped $700 billion last week to hit a 9-month high, which, alongside the central bank's shrinking forward book, cements the rupee's defences at a time when U.S. trade policy uncertainty looms, analysts said. Economists assess the Reserve Bank of India's (RBI) capacity to intervene in the foreign exchange market by evaluating its foreign exchange reserves and forward book positions, both of which are on a healthy trajectory. India's foreign exchange reserves rose to $702.8 billion as of June 27, up $4.9 billion week-on-week, as per data released on Friday. The reserves had declined to a multi-month low of $624 billion in late January but have now recovered to within touching distance of their all-time high hit last year. At the same time, the RBI's short-dollar position in the forward market, which had risen to a record $88.7 billion in February, declined to $65.2 billion by May. The data is released with a one-month lag. Substantial short positions in the forward dollar book offset some of the cushion offered by headline FX reserves, since they imply future commitments that could drain the reserves. Indian rupee ends week little changed, looming tariff deadline in focus The RBI's forward book shrank by $19 billion over April and May, while its net dollar selling during the same period was just $3.2 billion. This suggests the RBI is allowing a portion of the forward book to unwind and is offsetting the impact on rupee liquidity and FX reserves by purchasing dollars in the spot market, said Gaura Sen Gupta, an economist at IDFC First Bank. 'The reduction in forward book size and sufficient FX reserves are a positive for the INR. It increases the RBI's ability to intervene if required,' Sen Gupta said. The RBI intervenes in foreign exchange markets to curb excessive volatility. The central bank did not respond to an email seeking comment. The rupee is among emerging market currencies that have experienced heightened volatility since April 2, when U.S. President Donald Trump announced sweeping tariffs, only to pause the steep hikes for 90 days. U.S. and Indian trade negotiators are pushing to finalise a trade deal before the July 9 deadline, and a failure could heighten volatility for the rupee. A change in the composition of the RBI's forward book towards more onshore positions than non-deliverable forwards is one more positive for the rupee, according to analysts. Positions in the non-deliverable forward market, unlike their onshore counterparts, are typically concentrated in near-tenors and need to be rolled over frequently, adding to volatility. This shift 'reduces the pressure on the RBI to unwind the short dollar positions very aggressively,' Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership, said in a note. 'Any decision to unwind the book should be based on balance of payment flows to ensure optics of FX reserves is managed well.'
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Business Standard
26-06-2025
- Business
- Business Standard
RBI bond holdings hit record high, may ease in months ahead, say traders
The Reserve Bank of India's (RBI) holdings of Indian government securities climbed to a record in absolute terms following aggressive debt purchases, but analysts anticipate a reduction as the year progresses. The RBI's bond holdings rose to 12.78per cent of the outstanding issuances as of March-end from 10.55per cent at December-end, according to central bank data released on Wednesday. In absolute terms, this amounts to approximately 14.88 trillion rupees ($173.55 billion), a record high, marking an increase of 2.83 trillion rupees in the January-March quarter. The central bank had purchased bonds worth 2.45 trillion rupees via open market operations (OMOs) and an additional 388 billion rupees through secondary market transactions in the quarter. Analysts noted that the RBI's holdings might diminish in the coming months as some of the debt matures. The central bank holds between 500 billion rupees to 1 trillion rupees of securities that mature in this financial year. "Holdings may further go up for the current quarter, but in most cases, OMOs are now behind us, especially after the central bank announced a reduction in cash reserve ratio and a reverse repo," said VRC Reddy, treasury head at Karur Vysya Bank. The RBI aims to keep liquidity above 1per cent of deposits till March 2026, according to Gaura Sen Gupta, chief economist with IDFC First Bank. To that end, it announced a 100 basis-point reduction in banks' cash reserve ratio, effective from September to December, in its policy meeting in June. The RBI also cut its repo rate by 50 basis points and shifted its policy stance to neutral. "In our base case, we do not expect more OMO purchases" for the rest of this financial year, Sen Gupta said. The central bank will also conduct a seven-day variable rate reverse repo auction for 1 trillion rupees on Friday. Market participants see this as part of the RBI's strategy to align the weighted average call rate closer to the repo rate, which will further tweak liquidity. If growth undershoots the RBI's expectation, they may choose to loosen the liquidity valve, said Dhiraj Nim, an economist and FX strategist at ANZ Research. Sen Gupta noted that additional OMO purchases would likely depend on significant capital outflows. "For now, in our base case, we expect balance of payments to be a small surplus in fiscal 2026," she said.
Reuters
26-06-2025
- Business
- Reuters
India cenbank's bond holding climbs to record, could ease in months ahead, say traders
MUMBAI, June 26 (Reuters) - The Reserve Bank of India's (RBI) holdings of Indian government securities climbed to a record in absolute terms following aggressive debt purchases, but analysts anticipate a reduction as the year progresses. The RBI's bond holdings rose to 12.78% of the outstanding issuances as of March-end from 10.55% at December-end, according to central bank data released on Wednesday. In absolute terms, this amounts to approximately 14.88 trillion rupees ($173.55 billion), a record high, marking an increase of 2.83 trillion rupees in the January-March quarter. The central bank had purchased bonds worth 2.45 trillion rupees via open market operations (OMOs) and an additional 388 billion rupees through secondary market transactions in the quarter. Analysts noted that the RBI's holdings might diminish in the coming months as some of the debt matures. The central bank holds between 500 billion rupees to 1 trillion rupees of securities that mature in this financial year. "Holdings may further go up for the current quarter, but in most cases, OMOs are now behind us, especially after the central bank announced a reduction in cash reserve ratio and a reverse repo," said VRC Reddy, treasury head at Karur Vysya Bank. The RBI aims to keep liquidity above 1% of deposits till March 2026, according to Gaura Sen Gupta, chief economist with IDFC First Bank. To that end, it announced a 100 basis-point reduction in banks' cash reserve ratio, effective from September to December, in its policy meeting in June. The RBI also cut its repo rate by 50 basis points and shifted its policy stance to neutral. "In our base case, we do not expect more OMO purchases" for the rest of this financial year, Sen Gupta said. The central bank will also conduct a seven-day variable rate reverse repo auction for 1 trillion rupees on Friday. Market participants see this as part of the RBI's strategy to align the weighted average call rate closer to the repo rate, which will further tweak liquidity. If growth undershoots the RBI's expectation, they may choose to loosen the liquidity valve, said Dhiraj Nim, an economist and FX strategist at ANZ Research. Sen Gupta noted that additional OMO purchases would likely depend on significant capital outflows. "For now, in our base case, we expect balance of payments to be a small surplus in fiscal 2026," she said. ($1 = 85.7400 Indian rupees)
Business Recorder
26-06-2025
- Business
- Business Recorder
India central bank's bond holding climbs to record, could ease in months ahead, say traders
MUMBAI: The Reserve Bank of India's (RBI) holdings of Indian government securities climbed to a record in absolute terms following aggressive debt purchases, but analysts anticipate a reduction as the year progresses. The RBI's bond holdings rose to 12.78% of the outstanding issuances as of March-end from 10.55% at December-end, according to central bank data released on Wednesday. In absolute terms, this amounts to approximately 14.88 trillion rupees ($173.55 billion), a record high, marking an increase of 2.83 trillion rupees in the January-March quarter. The central bank had purchased bonds worth 2.45 trillion rupees via open market operations (OMOs) and an additional 388 billion rupees through secondary market transactions in the quarter. Analysts noted that the RBI's holdings might diminish in the coming months as some of the debt matures. The central bank holds between 500 billion rupees to 1 trillion rupees of securities that mature in this financial year. 'Holdings may further go up for the current quarter, but in most cases, OMOs are now behind us, especially after the central bank announced a reduction in cash reserve ratio and a reverse repo,' said VRC Reddy, treasury head at Karur Vysya Bank. Indian bonds flat as sell-off stalls after pricing in RBI liquidity plan The RBI aims to keep liquidity above 1% of deposits till March 2026, according to Gaura Sen Gupta, chief economist with IDFC First Bank. To that end, it announced a 100 basis-point reduction in banks' cash reserve ratio, effective from September to December, in its policy meeting in June. The RBI also cut its repo rate by 50 basis points and shifted its policy stance to neutral. 'In our base case, we do not expect more OMO purchases' for the rest of this financial year, Sen Gupta said. The central bank will also conduct a seven-day variable rate reverse repo auction for 1 trillion rupees on Friday. Market participants see this as part of the RBI's strategy to align the weighted average call rate closer to the repo rate, which will further tweak liquidity. If growth undershoots the RBI's expectation, they may choose to loosen the liquidity valve, said Dhiraj Nim, an economist and FX strategist at ANZ Research. Sen Gupta noted that additional OMO purchases would likely depend on significant capital outflows. 'For now, in our base case, we expect balance of payments to be a small surplus in fiscal 2026,' she said.
The Print
25-06-2025
- Business
- The Print
RBI announces 7-day reverse repo rate auction as liquidity enters surplus stage
India's banking system liquidity surplus stood at 2.44 trillion rupees as of June 23, as per RBI data. The Reserve Bank of India (RBI) added that after reviewing evolving liquidity conditions, it will not conduct the 14-day main operation scheduled for Friday, for the ensuing fortnight, according to a press release. Mumbai: India's central bank said on Tuesday it will conduct a seven-day variable rate reverse repo auction worth one trillion rupees ($11.62 billion) on June 27, following a review of liquidity conditions in the banking system. The central bank in June announced a surprise 100-basis-point reduction in the cash reserve ratio, the portion of deposits banks must park with the RBI, in four equal tranches beginning September, lowering it to 3%, to boost policy transmission. Amid surplus liquidity conditions, the weighted average overnight call rate has remained well below the RBI's key repo rate and near the policy corridor's floor, the Standing Deposit Facility rate, for the past few weeks. A persistent gap between the RBI's operative rate and the policy rate typically signals that banks are accessing cheaper funding than what the central bank is comfortable with, as per traders. Earlier this month, Reuters had reported that the RBI could start conducting variable rate reverse repo auctions to suck out surplus liquidity as and when required. 'The move (VRRR announcement) indicates that the RBI wants the operative rate closer to the repo rate,' said Gaura Sen Gupta, India economist at IDFC FIRST Bank. The move comes sooner than expected with the transmission via various channels – credit, deposit and bond market – in its early stages, Sen Gupta said, adding that the move may lead to a further rise in short-term yields. ($1 = 86.0580 Indian rupees) (Reporting by Siddhi Nayak; Editing by Vijay Kishore) This report is auto-generated from Reuters news service. ThePrint holds no responsibility for its content. Also Read: Jana Small Finance Bank Applies to RBI for Universal Banking License
