RBI’s Aggressive NDF Intervention to Support Rupee
The Reserve Bank of India (RBI) reportedly conducted a substantial intervention in the non-deliverable forwards (NDF) market, selling around $1.5 billion worth of contracts on Friday. This move came amidst escalating tensions between Iran and Israel, which had pressured the rupee and other emerging market currencies lower.
NDFs: A Tool for Currency Bets
NDFs, or non-deliverable forwards, are dollar-settled currency derivatives used by investors to speculate on currency movements. The 1-month dollar/rupee NDF climbed to 83.80 on Friday amid reports of escalating tensions. However, the RBI’s intervention led to a rapid pullback of nearly 20 paise before the local spot market opened.
Intent to Stabilize Rupee
According to sources, the RBI’s intervention was characterized as “very aggressive,” with the clear intent of pushing the USD/INR rate down before the spot market opened. Estimates suggest that the RBI sold between $1.5 billion to $2 billion worth of NDF contracts before the spot market commenced trading.
Spot Market Response
As a result of the intervention, the rupee opened at 83.5550 to the dollar in the spot market on Friday, down only 0.2% from its previous close. Despite hitting an all-time low of 83.5750 during the session, the rupee ultimately closed higher at 83.47 against the dollar.
Market Sentiment and Outlook
Following the RBI’s intervention, market sentiment regarding the rupee’s outlook shifted, with traders noting diminished appetite to buy the dollar/rupee pair. While the rupee remained relatively stable at 83.3650 against the dollar on Tuesday, ongoing geopolitical tensions and central bank actions continue to influence currency dynamics.