RBI's October spot trades hit six-year high at $73.7 billion

The Reserve Bank of India's (RBI) spot transactions constituted one-sixth of the total forex trading volume in October. The RBI's spot purchases and sales of dollars amounted to $36.7 billion and $37 billion, respectively, marking the highest aggregate activity since at least 2012, according to data analysed by Reuters. This represented 17 per cent of the total turnover between banks in the onshore over-the-counter market, the highest under the current RBI governor, Shaktikanta Das, who assumed office in December 2018.

Das is considered by some analysts as one of the most interventionist RBI governors. The October data raised questions about significant spot intervention, with a net intervention of just a $0.3 billion sale, according to Vikas Bajaj, head of currency derivatives at Kotak Securities. Bajaj suggested that the massive spot intervention aimed to maintain the rupee within a narrow range and keep implied volatility low.

Rupee stability continues

During October, the rupee traded in a tight range of 83.04 to 83.25, and this stability persisted in November and December, resulting in the lowest volatility expectations since 2008. The International Monetary Fund noted that the rupee's very narrow trading range suggested intervention levels that may have exceeded those necessary to address disorderly market conditions, prompting a reclassification of India's exchange rate regime from "floating" to a "stabilised arrangement."

While the RBI's net spot intervention was minimal, its activity in forwards and futures was more substantial. In October, the central bank sold $19.2 billion in forwards and held an outstanding currency futures position of $4.2 billion. Gaura Sen Gupta, an economist at IDFC First Bank, observed that the RBI's negligible net spot intervention, coupled with significant changes in the forward book, indicated the central bank's efforts to achieve dual objectives of limiting rupee volatility and maintaining spot FX reserves.

(With Reuters Inputs)