RBI’s net short dollar position crosses $100 billion for first time
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The Reserve Bank of India’s intervention in the currency derivatives market surged in March, with its net short dollar position crossing $100 billion for the first time.
According to RBI data released Thursday and Bloomberg calculations, the central bank’s net short dollar position rose by $25.4 billion from February to reach a record $103 billion.
The increase reflected intensified intervention in both onshore and offshore forward markets as the RBI stepped up efforts to defend the rupee during a period of rising crude oil prices linked to the US-Iran war.
“The massive buildup was expected as the central bank defended the currency in the spot and forwards market due to the Iran war,” Madhavi Arora, chief economist at Emkay Global Financial Services Ltd, said.
RBI data showed total short positions of $51.4 billion in contracts with maturities of up to one year and $52.8 billion in the above one-year category. The central bank also held a $1.1 billion long position in the up to one month segment.
The rupee’s decline in March prompted the RBI to introduce measures aimed at stabilising the currency. The central bank limited banks’ open position limits to $100 million and briefly instructed banks to stop offering offshore rupee contracts to clients before later reversing the decision.
The rupee initially recovered following the measures but came under renewed pressure as crude prices continued to rise.
On Thursday, the rupee fell to a fresh record low of 95.3337 against the US dollar, driven by concerns that higher oil prices could widen India’s current account deficit at a time of limited capital inflows.