RBI may prioritise closing dollar shorts with FCNR(B) inflow
The Reserve Bank of India may use FCNR(B) inflows to close its $137 billion short forward dollar positions to manage liquidity and defend the rupee. Experts suggest this move aims to curb inflation and stabilize the currency amid structural depreciation.
Why it matters
Monetary policy decisions regarding foreign exchange reserves are critical for maintaining India's macroeconomic stability and controlling inflation.
The central bank may prioritise closing its $137 billion open short forward dollar positions , with the FCNR(B) deposits received , according to experts and industry insiders.
“The RBI has an outstanding short forward position of USD 137 Bn. If the RBI decides to not roll over the outstanding positions the INR liquidity will be absorbed from the banking system and RBI may use the excess FX reserves generated from the FCNR (B) scheme for delivering the dollars,” said Shashi Dhar, Chief General Manager of Treasury & Global Markets at Bank of Baroda. Short forward dollars are currency derivative contracts where RBI commits to sell dollars at a future date at a predetermined rate. This is used to defend the rupee without drawing down spot reserves immediately.
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