RBI STEPS TO HELP REPEE Concerned about the rupee’s fall to a record low, India’s central bank has discreetly phoned trading desks with unusually explicit messages to cut their speculative positions in the currency, said three senior market participants with direct knowledge of such calls. While the Reserve Bank of India (RBI) regularly monitors positions and flows in the currency market, these people said it was unusual for the central bank to call so often or state so explicitly that banks should cut their intraday net open position limits—or their outstanding positions in futures and forwards markets. A bank’s net open position is its aggregate exposure to foreign exchange risk. The pressure highlights the limited options for a central bank that has seen the rupee hit hard in last month’s emerging markets rout, but is reluctant to sell too much of its US dollar foreign reserves given they are enough to cover only seven months of imports. While RBI has succeeded in curbing speculation in India’s roughly $8-9 billion currency futures and forwards markets, it also runs the risk of choking off liquidity and creating volatility, making it harder for banks to manage genuine client currency needs. It could also drive further currency trading to offshore markets such as Singapore via non-deliverable forwards, beyond the RBI’s reach. Non-deliverable forwards are a derivative instrument that allow investors to speculate on a currency’s movement without having to hold the currency.
Posted on: Tue, 02 Jul 2013 17:50:35 +0000
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