RBI changes tack on forex intervention

washington — India’s central bank has changed tack in its foreign exchange intervention policy, increasing its participation in the derivatives market in relation to the spot market in an apparent attempt to avoid a cash crunch in the banking system.

The Reserve Bank of India sold $4.95 billion in the forward dollar-rupee market in August, its highest reported monthly sale this year, according to the RBI’s monthly bulletin. In July, RBI data showed no forwards market intervention at all.

In contrast to forwards, the RBI sold only a net $2.32 billion in August in the spot market, marginally above the $1.87 billion figure for July.

The rupee has weakened more than 14 per cent since January, making it the worst hit currency in the region amid an emerging market rout.

While this prompted the government to raise import tariffs on several items, markets continue to fret about the outlook for the rupee after the central bank refrained from raising interest rates last week.

The rupee started hitting a series of record lows in late-July and on Thursday it touched another at 74.48 to the dollar, (20.29 versus the UAE dirham) spurring worries it will breach the 75 mark soon. —