Indian central bank steps up offshore FX defence to shield rupee

The local currency’s one-month volatility against the US dollar has fallen sharply this month

India’s central bank has ramped up its interventions in offshore currency markets to defend the beleaguered rupee, according to sources familiar with the development.

The Reserve Bank of India (RBI) has built up short US dollar positions of at least US$15 billion in the non-deliverable forwards market over the past two to three weeks, the sources said, asking not to be identified discussing private matters.

That marks a firm return to a segment in which the central bank had steadily reduced its presence over the past year, they said.

The expanded intervention comes at a time when the currency is charting fresh lows against the US dollar, weighed down by record outflows from local stocks and concerns over punitive US tariffs. With the rupee emerging as Asia’s worst performer this year, the central bank has also unveiled measures to enhance its global appeal.

RBI governor Sanjay Malhotra said last week that the central bank was keeping a close watch on the rupee’s movements and would take “appropriate steps” as warranted. That goes beyond the central bank’s usual statement on stepping in to curb volatility in the currency, according to economists from HSBC Holdings.

The RBI resumed interventions in the non-deliverable forwards market in August and further stepped up the operations in September, particularly in the one-month segment, the sources said. The central bank mostly stepped in before the local market opened at 9 am in Mumbai, with the activity picking up whenever the rupee breached the 89 per US dollar mark in the offshore market, they said.

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The local currency’s one-month volatility against the US dollar has fallen sharply this month, according to a Bloomberg gauge.

A spokesperson for the RBI did not respond to an e-mail seeking comments.

Using offshore non-deliverable forwards (NDF) has a number of advantages for central banks, including potentially lower costs and the fact that they do not drain official reserves.

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That’s because the NDF contracts allow the central bank to influence the rupee’s levels without actually selling large amounts of US dollars. Such interventions can also act as a signal of intent in the spot market, thus boosting the rupee when markets are volatile. BLOOMBERG