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RBI’s net forward book shrinks $34.94 bn in first 3 months of FY23

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The Reserve Bank of India’s outstanding net forward purchases of US dollars declined by a massive $18.33 billion in June as the central bank intervened in both the forwards and the spot market in order to protect the from excessive depreciation in the face of a widening trade deficit.

Data in the RBI’s August 2022 Bulletin showed that the central bank’s net forward purchases at the end of June were at $30.86 billion against $49.19 billion at the end of May.

At the end of the previous financial year, the outstanding long net forwards position was at $65.79 billion, the RBI data showed.

The decline in the outstanding net forward purchase position comes after the central bank took delivery of its maturing forward positions.

Over the last few months, the RBI has significantly expanded the scope of its interventions in the foreign exchange market to include activities in both the forwards and the futures segments. These are in addition to its heavy interventions through dollar sales in the spot market.

“My sense is that they (the RBI) have used some of the forwards which had matured and they didn’t roll it over because they were defending the by using forwards as well as by using spot market interventions,” Soumyajit Niyogi, director, India Ratings & Research told Business Standard.

“We had a high capital account deficit as well as a current account deficit but if you see the movement in forex reserves- it’s not been so high. So, the difference is because they have used the forwards and that’s the reason why the foreign exchange reserves haven’t depleted too much even in the face of a high Balance of Payments (BoP) deficit.

The August bulletin also showed that the RBI had net sold $3.7 billion in the spot market during the month of June.

The depreciated 1.3 per cent versus the US dollar in June, weakening past the 78 per dollar mark for the first time ever, as India recorded an all-time high trade deficit of $26.1 billion that month. So far in 2022, the rupee has depreciated 6.8 per cent against the dollar.

The RBI’s total headline foreign exchange reserves were at $570.74 billion as on August 12, much lower than $631.53 billion as on February 25 – around the time Russia invaded Ukraine.

The level of the RBI’s headline reserves as on August 5 – $573 billion – was equivalent to 9.4 months of imports projected for 2022-23, the central bank said.

As on March 4, just about a week after the Ukraine war broke out, the RBI’s reserves were at $631.9 billion, accounting for 12.4 months of imports projected for the previous financial year.


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