Indian central bank’s forward book expands after six months as it mounts rupee defense

MUMBAI: India’s central bank increased its short dollar forward positions by $6 billion in September, marking the first rise in six months, data released on Friday showed, as it intensified efforts to curb pressure on the rupee.

The Reserve Bank of India’s net short position in FX forwards and futures stood at $59.4 billion as of September-end signaling continued sales of dollars in the forward market. The data is released with a one-month lag.

The FX forward book reflects positions in both non-deliverable forwards (NDF) and the onshore forward markets, which had peaked in February. Analysts had anticipated the September rise.

“The increase of the forward book reflects RBI intervention to defend the INR and reduce the drain on banking system liquidity,” said Gaura Sen Gupta, chief economist at IDFC First Bank.

The rupee weakened for a fifth consecutive month in September, hitting a record low of 88.80 against the dollar.

The decline was attributed to dollar outflows linked to gold imports by jewelry firms, foreign portfolio withdrawals, and concerns over steep U.S. tariffs on Indian goods.

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Despite the RBI’s interventions, the rupee continued to face pressure through October as importer and NDF-related dollar demand and the Federal Reserve’s hawkish stance weighed.

While the central bank actively defended the 88.80 level early in the month, efforts to push it towards 87.60 proved short-lived. By Friday, the rupee had declined to 88.7650, within touching distance of its record low.

Economists expect the RBI’s short forward book to expand further in October, reflecting its intensified interventions.

“The forward book would have expanded further with the RBI’s defence of the INR becoming more pronounced (in October),” Sen Gupta said.