RBI may intervene in forward market: source1 min read . Updated: 27 Jan 2012, 03:01 PM IST
RBI may intervene in forward market: source
Mumbai: The Reserve Bank of India may intervene in the forward foreign exchange market, in addition to the spot market, to help manage liquidity in the banking system, a RBI source said on Friday.
It has, however, recovered smartly in 2012, gaining nearly 6% so far, helped by renewed flows in equity as well as large inflows into debt.
“If and when we are doing it (intervention), we may do a combination of spot and forwards, so liquidity impact is shifted to a future date," the source said.
The RBI has been active in the forex market in recent months, in a bid to prop up the rupee. Traders have routinely suspected the RBI’s hand in the market, specially in late hours of trade.
The official RBI intervention data comes with a month’s lag. The RBI sold $2.92 billion in the spot market in November, its biggest sale of dollars in over two-and-half years.
Net outstanding sales stood at $1.62 billion in the forward market in November, the first time the RBI has intervened in the segment in over a year.
Wednesday, RBI deputy governor H.R. Khan said that any central bank intervention, as and when it happens, will be a combination of both cash as well as forward basis.
“But there is a limit upto which you can do forward because then the premiums will disturb other rates," he said, adding the amount is decided based on the market condition.
Banks borrowed ₹ 1.59 trillion ($32.1 billion) from the RBI’s repo window on Friday, compared with ₹ 1.45 trillion on Wednesday, and significantly higher than the RBI’s comfort zone of ₹ 60,000 crore, indicating the tightness in liquidity.
Tuesday, the RBI slashed its cash reserve ratio by 50 basis points to inject ₹ 32,000 crore in the banking system. The cut will be effective on Saturday. In addition, it has bought ₹ 70,000 crore of bonds since November to support the government’s large borrowing programme.
At 2:45 pm, the rupee was at 49.46/46.50 to the dollar, after touching 49.44, its highest since 9 November, and firmer than 50.09/10 at close on Wednesday. The market was closed on Thursday for a local holiday.