During one of press meets as RBI Governor, Dr. Raghuram Rajan had talked about creating a bullet proof balance-sheet for the country. These comments were made amid the backdrop of falling rupee, FX reserves and weak macro-economic indicators. India’s macro-economic indicators have improved dramatically as crude tumbled to historic low and India became darling of global investors. Rapid decline in import bill (falling oil-Prices) along with sustained foreign flow in domestic market has led to steady appreciation of rupee viz-a-viz to its global peers and healthy growth of FX reserves.
FX Reserve:
India’s forex reserves, which had come under pressure in 2013, are in touching distance of magic figure $ 400 Bn. Consequently, India has nearly 12 months of import covers instead of just 6 months in 2013. This increase is well supported by sharp decline in India’s import bill, which slumped from $490 bn to $ 382 Bn in 2017. It is note-worthy that there has been sharp decline in overall trade, which is dragging the growth lower.
Forex Buying in Forward Markets:
Ever-since demonetization RBI has been battling with excess rupee liquidity, of nearly INR 3 trillion, using various tools at its disposal. This liquidity overhang has retrained RBI’s ability to buy dollars in spot market, as it will lead to increase in INR liquidity. Consequently, RBI has been actively paying in the forward markets, in various maturities, to delay delivery of INR.
Source- RBI Monthly Bulletin
As above chart depicts, RBI has bought nearly 7 Bn in the forward markets, between 30 June 2017 and 31 July 2017, in the bucket of 3 months and up to 1 year. Though, it is slightly far-fetched, but it seems that RBI believes downside risk of excessive rupee appreciation is more critical than paying forward premium. Going forward, It seems RBI might remain active in forex active to stem excessive appreciaton.
Ever-since demonetization RBI has been battling with excess rupee liquidity, of nearly INR 3 trillion, using various tools at its disposal. This liquidity overhang has retrained RBI’s ability to buy dollars in spot market, as it will lead to increase in INR liquidity. Consequently, RBI has been actively paying in the forward markets, in various maturities, to delay delivery of INR.
Source- RBI Monthly Bulletin
As above chart depicts, RBI has bought nearly 7 Bn in the forward markets, between 30 June 2017 and 31 July 2017, in the bucket of 3 months and up to 1 year. Though, it is slightly far-fetched, but it seems that RBI believes downside risk of excessive rupee appreciation is more critical than paying forward premium. Going forward, It seems RBI might remain active in forex active to stem excessive appreciaton.
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