Carry positions can hurt exchange rate and cause inflation, says SBI

This is particularly important for the Reserve Bank of India (RBI) as it works under an inflation-targeting regime

A huge buildup of carry positions could negatively impact the exchange rate and lead to inflation, State Bank of India’s (SBI)’s economic research arm warned on Monday.
 
“With significant open positions in USD-INR carry trade, a vibrant non-deliverable forward market with big players and a high forward premia... if due to any event, the positions are unwound, it can put significant depreciating pressure on the rupee, thus impacting inflation adversely,” wrote Soumya Kanti Ghosh, chief economic advisor of the SBI group, in a report.
 
This is particularly important for the Reserve Bank of India (RBI) as it works