Mumbai: The Reserve Bank of India's (RBI) net short forward position widened to a record $104 billion in March, up sharply from $77 billion in February, reflecting sustained intervention to defend the rupee amid volatility stemming from the West Asia conflict.
Using the forex pile to defend the rupee effectively brings down India's import cover to less than nine months, economists said. At present, the reserves are sufficient to cover of 9-10 months of imports.
The central bank was present in the market almost daily through March as the currency repeatedly touched fresh lows, weakening more than 4% from 90.98/$ on February 27 to 94.83/$ by March 30.
"To sterilise intervention in the spot market and contain liquidity drawdown, the RBI started intervening in the forwards market. The over $100 billion number brings down India's import cover to less than nine months," said Guara Sen Gupta, chief economist at IDFC First Bank.
When these short positions mature, the RBI will have to sell dollars in exchange for rupee, impacting liquidity.
Source Name : Economic Times