RBI spot intervention, NDF market checks for rupee depreciation

The rupee has appreciated only 1.14 percent against the dollar since the US Fed raised rates by a quarter point on February 1 thanks in part to Central Bank of India’s intervention in the spot and non-deliverable forward (NDF) markets. Although the dollar index (DXY) increased 3.60% during that time, the currencies of emerging markets (EM) fell 2.74 %.

According to market observers, the rupee was prevented from crossing the 83 to the dollar mark thanks to the central bank’s aggressive intervention (through dollar sales). According to Amit Pabari, MD of CR Forex Consultants, the RBI’s audacious intervention may be the main factor explaining why the rupee declined significantly less against developing market currencies. According to recent data, the RBI sold $8.3 billion, causing the reserves to drop by the most in ten months for the week ending February 10th.

The forward book, which grew by approximately $10 billion by the end of December 2022, “might have been utilised today to contain the currency losses,” according to the statement. A non-convertible currency can be traded on the NDF market without interference from domestic authorities. Since the non-convertible money cannot be sent overseas, these transactions are settled in a convertible currency, typically dollars. Finally, one can see that the rupee doesn’t fall or increase in line with the same when the US DXY and EM currencies suddenly depreciate or gain; this indicates that the RBI concurrently reduces both “depreciation” and “volatility,” according to Pabari.

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