RBI Asks Banks To Cut Dollar-Rupee Long Positions Amid Record-Low Rupee

The RBI directive, aimed at curbing speculative activity, comes as the rupee touched a record low of 84.5075 against the US dollar, according to four bankers directly aware of the matter

Although the RBI has previously prevented banks from increasing long dollar-rupee positions, asking them to cut existing positions marks a significant step not seen in recent years.

Source : PTI

The Reserve Bank of India (RBI) instructed select banks to reduce their long positions on the dollar-rupee pair on Friday, according to news agency Reuters. The directive, aimed at curbing speculative activity, comes as the rupee touched a record low of 84.5075 against the US dollar, according to four bankers directly aware of the matter.

The RBI's financial market regulations department informally communicated the instructions, the bankers revealed, adding that this action reflects the central bank's broader strategy to stabilise the currency.

Although the RBI has previously prevented banks from increasing long dollar-rupee positions, asking them to cut existing positions marks a significant step not seen in recent years. This measure adds to the central bank's established forex intervention toolkit, which includes selling dollars in both the spot and non-deliverable forward (NDF) markets.

Reducing speculative shorts against the rupee could prompt dollar sales in the spot market, potentially offering some support to the Indian currency, the bankers noted. However, they declined to be identified as they are not authorized to speak to the media.

Additionally, the RBI has advised banks to avoid purchasing spot dollars to execute arbitrage trades across the onshore spot, futures, and offshore NDF markets. Such arbitrage typically arises when the rupee is under pressure, with offshore rates exceeding onshore rates, increasing dollar demand domestically while boosting liquidity offshore.

The rupee showed signs of recovery later in the day, gaining 6 paise to close at 84.44 (provisional) against the US dollar. Analysts attributed the recovery to positive domestic equities, which offset broader concerns about the strong US dollar and rising Brent crude oil prices amid ongoing geopolitical tensions between Ukraine and Russia.

Forex traders noted that the rupee remains in a narrow trading range, influenced by global market dynamics and investor sentiment driven by the prolonged conflict in Europe.