RBI's Short Dollar Position Surpasses $100 Billion

Indian Central Bank's Intervention in Derivatives Market Hits Record High

The Reserve Bank of India's (RBI) intervention in the derivatives market saw a significant surge in March, with its net short dollar position reaching a record high of $103 billion. This represents a substantial increase of $25.4 billion from February, according to Bloomberg calculations based on RBI data released on Thursday.

The RBI's intervention in both onshore and offshore forwards markets reflects its efforts to defend the currency in the face of surging crude prices following the US-Iran war. The data shows that the RBI's total short positions stood at $51.4 billion in the up to one year bucket and $52.8 billion in the above one year category. Notably, the RBI also held a $1.1 billion long position in the up to one month segment.

The RBI's actions were prompted by the rupee's slide in March, which led the central bank to take steps to limit banks' open position limits to $100 million. Additionally, the RBI asked banks to stop offering offshore contracts, involving the rupee, to clients. However, this move was later reversed.

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The currency recovered after the RBI's steps, but has come under renewed pressure as crude prices continued to climb. The rupee fell to a new record low of 95.3337 to a dollar on Thursday, amid growing concerns that rising crude prices would lead to a wider current account gap amidst sparse capital inflows.