RBI's FX forward book tipped to shrink after touching $200 billion

Business Recorder reported that the Reserve Bank of India's net forward dollar obligations reached an all-time high of $200 billion in August. The rise came while the monetary authority soaked up a sharp increase in one-off dollar inflows triggered by policy steps. Forward liabilities had grown by $63 billion from the previous month, after reaching almost $137 billion in July.

Market participants expect the outstanding stock to shrink as the RBI runs dollar-rupee sell/buy swaps. Bankers say the swaps seek to move up the due dates of current positions and drain surplus rupee liquidity from banks. The RBI has carried out similar swaps over the past three weeks, mostly with maturities of three months to one year.

Those inflows came from schemes running from June through September, which offered discounted hedging on overseas loans and on deposits held in foreign currency. From June 8 to September 18, inflows totalled $143.5 billion, almost $133 billion of it through deposits. Foreign reserves touched a record $785.7 billion as of the week to September 4. DBS analysts believe part of that stock could be set aside against the forward liabilities, which would ease fears that deposits falling due or debt servicing might sharply lift demand for dollars.