Rupee: RBI takes futures, NDF route to protect Rupee, forex

Dayana Jones
The central bank’s calibrated intervention in the currency derivatives markets Tuesday salvaged the rupee from record lows, with the Reserve (RBI) deviating from its traditional script of spot selling of dollars to preserve the foreign exchange stockpile seen as crucial for ensuring macroeconomic stability.

The central bank is said to have sold dollars in the futures market and the offshore non-deliverable forwards (NDF) markets to prevent a drawdown for now on its foreign exchange reserves that are just shy of $600 billion currently.

“We are witnessing a combination of avenues in the central bank intervention strategy as the rupee slides,” said Bhaskar Panda, executive vice president,

. “Such a strategy may be aimed at protecting the forex reserves for now amid the global turbulence.”

The RBI didn’t respond to ET’s queries on the subject.

To be sure, transactions in the futures and NDF markets are not entirely new for Mint Road, but these markets have not been the mainstay of the intervention blueprint for currency stability in India.


The rupee gained 0.19% to close at 77.33 Tuesday. The local unit was the third-best performer in Asia – behind the Philippine peso and Thai baht.

The RBI may also have sold some dollars in the spot market Tuesday via two state-owned banks. Dollar sales in the futures and NDF markets together may be in the range of $1-1.7 billion in the past two days, and the spot market dollar sales could be in the region of about $500 million, said a veteran currency dealer from a large state-owned bank.

The rupee had plunged to a new low Monday. It closed at 77.46 per dollar Monday, breaking its erstwhile record of 76.97 reached on March 7. The next crucial level for the currency is seen in the range of 78-78.50 a dollar.

Focus on Forex Reserves

“We have not seen any significant spot market intervention recently with the rupee sliding to the all-time low,” said Anindya Banerjee, currency analyst,

Securities. “The RBI probably chose to protect forex reserves, resulting in interventions in the futures and offshore NDF markets.”

Typically, spot market interventions will immediately deplete dollar reserves as the central bank sells dollars to receive rupees. However, the obligation of delivering dollars can be pushed forward via buy/sell swaps at a later date.

Similarly in the NDF market, a local bank has to settle only the differential in exchange rates (between contract booking rate and rate on contract maturity date) in dollar terms at the time of contract maturity.

The RBI now intervenes in the NDF with local banks acting on its behalf via GIFT City, an international special economic zone.

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