India cenbank intervention in October balloons to a sixth of fx turnover

By Nimesh Vora

MUMBAI (Reuters) – The Indian central bank’s spot purchase and sale of dollars in October was one-sixth of the total forex trading volume, data analysed by Reuters showed, a factor that analysts said was instrumental in the rupee’s depressed volatility.

The Reserve Bank of India (RBI) purchased $36.7 billion and sold $37 billion in the spot market in October, according to the monthly bulletin released late on Wednesday.

The aggregate purchase and sales of $73.6 billion is the highest since at least 2012, according to data collated by Reuters from the monthly bulletin.

The RBI’s total fx activity accounted for 17% of the total turnover between banks in the onshore over-the-counter market, the highest under the current RBI governor Shaktikanta Das, who was appointed in December 2018.

Das is regarded by some analysts as being among the most interventionist of RBI governors.

The point from the October data is that why was there “such a massive spot intervention from both sides with net intervention at just a sale of $0.3 billion,” Vikas Bajaj, head of currency derivatives at Kotak Securities, said.

One can conclude that the spot intervention is “to broadly keep the rupee in a narrow range and implied volatility low,” he added.

The rupee was held in a narrow range of 83.04 to 83.25 in October, and it was the same in November and December as well, leading to volatility expectations to drop to the lowest since 2008.

The International Monetary Fund this week said the rupee traded in a “very narrow range, suggesting intervention likely exceeded levels necessary to address disorderly market conditions”.

It reclassified India’s “de facto” exchange rate regime to “stabilised arrangement” from “floating”.

While RBI’s net intervention in the spot market was minuscule, it was different for forwards and futures. The central bank sold $19.2 billion in forwards in October and had an outstanding currency futures position of $4.2 billion.

The RBI’s small $0.3 billion net spot intervention alongside major change in the forward book reflects the central bank trying to achieve two objectives of “limiting rupee volatility and maintaining spot FX reserves,” Gaura Sen Gupta, economist at IDFC First Bank, said.

(Reporting by Nimesh Vora and Jaspreet Kalra; Editing by Janane Venkatraman)