Indian central bank asks top banks to refrain from large trading bets against rupee: Sources
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The rupee dropped to an all-time low of 83.96 to the US dollar on Aug 6.
PHOTO: REUTERS
MUMBAI – The Reserve Bank of India (RBI) has asked some large banks to not add to their existing positions against the rupee in a bid to support the currency, which has fallen to all-time lows for three straight days, four bankers told Reuters.
Officials from the RBI’s financial markets regulation and operations department rang big banks on Aug 6, when the currency was at risk of breaching the 84 rupees per US dollar level in the spot market, said the bankers, who declined to be identified since they were not authorised to speak to the media.
The RBI did not immediately respond to a request for comment.
The rupee on Aug 6 dropped to a lifetime low of 83.96 to the US dollar and would have likely depreciated more if not for RBI’s instructions and direct intervention.
It has turned into the worst-performing Asian currency over the last month, pressured by the unwinding of trades that used the Chinese yuan to fund long bets on the local currency.
To slow the depreciation, the RBI has intervened across the spot, futures and non-deliverable forwards segments.
On Aug 6, RBI officials asked us to “consider the existing position size the risk limit”, a senior treasury official at a large foreign bank said.
This meant that the RBI did not want them to add to their existing trading positions on the rupee, he said.
The Indian central bank often uses such informal calls to prod banks to manage excessive volatility. Lenders typically comply.
The central bank on Aug 6 likely sold about US$1.5 billion (S$2 billion) in the non-deliverable forward market before the spot market opened, a currency trader at a bank said. This intervention prevented the rupee from falling past the psychological 84 level.
The RBI has asked banks “to not aggressively bid (on USD/INR) for speculative positions”, another senior banker at a foreign bank said.
The bankers said the central bank had not asked them to trim their existing positions, nor issued specific instructions regarding positions in the non-deliverable forwards market. REUTERS
