Key Highlights
- RBI’s net short positions in the forward book reached $78.6 billion in February.
- Breakdown of short positions:
- $45 billion in the three-month to one-year category
- $18.8 billion in the one-to-three-month category
- $14.8 billion in the up-to-one-month category
- Potential Rollover Required: Unwinding these positions could put further pressure on rupee liquidity.
Impact on Market and Liquidity
- Maturing short positions require RBI to sell dollars and absorb rupees, tightening liquidity.
- RBI has already conducted two $10 billion buy-sell swaps (maturing in three years) and a $5 billion swap maturing in August.
- Forex reserves declined from $704 billion in September to $658.8 billion currently.
- OMO purchases worth â‚ą80,000 crore announced on April 1 to ease liquidity concerns.
Possible Scenarios
- RBI may roll over short positions to prevent a liquidity drain.
- Additional liquidity infusion measures might be needed as system liquidity remains under stress.
- Forex reserves could continue to decline if RBI sells dollars aggressively to manage liquidity.
RBI faces a delicate balancing act between managing rupee liquidity and protecting forex reserves. Rolling over short positions and conducting strategic OMO purchases could help stabilize market conditions.
TET
