Context:
The Indian rupee is Asia’s worst-performing currency this quarter. While other emerging Asian currencies gained ground, the rupee remained broadly flat. The underperformance is linked to the Reserve Bank of India’s FX reserve management strategy.
RBI’s Forward Dollar Commitments & FX Reserve Focus
- RBI’s net short forward dollar position (future dollar sales):
- $73 billion as of April 2025
- Down from $88.8 billion in February (record high)
- The RBI is letting forward contracts run off while buying spot dollars to rebuild reserves.
- This demand for USD may depress the rupee further in coming months.
Market and Macro Context
- On June 2, the rupee was trading at â‚ą85.40/USD, up 0.2% following a strong Q4 GDP growth of 7.4%.
- Despite macro strength, foreign portfolio outflows and RBI’s intervention strategy are weighing on the currency.
India’s FX Reserve Status
- As of May 23, 2025, FX reserves stood at $693 billion, slightly below the all-time high of $705 billion (Sept 2024).
- RBI’s short-term dollar forward exposures:
- Up to 3 months: $15 billion
- 3 months to 1 year: $37.8 billion
Policy Outlook and RBI Strategy
- RBI aims to rebalance reserves while avoiding over-reliance on the forward market.
- The central bank prefers spot market purchases to maintain a strong buffer against global shocks and geopolitical risks.
- RBI Governor Sanjay Malhotra has allowed more market-driven currency movements, but retains active FX management.
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