RBI acts in forwards market to protect forex reserves, pulls down premiums

This move by the central bank results in premiums crashing

The Reserve Bank of India’s (RBI’s) recent decision to take advance delivery of outstanding long-forward dollar positions points to its desire to protect the fast-depleting foreign exchange (forex) reserves, analysts said. The RBI’s actions have triggered a sharp decline in dollar/rupee forward premiums.

Currency analysts who spoke to Business Standard said at a time when significant dollar strength has been pushing the rupee to record lows, the RBI may be wishing to ensure that its forex reserves do not drop below a certain level.

“I think because we saw a precipitous headline fall in the reserves from $640 billion to