After sustained intervention by the Reserve Bank of India’s (RBI) to support the rupee during a period of heightened volatility triggered by the Middle East conflict, the central bank’s net short forward position in the foreign exchange market widened to a record $106.6 billion in May, up from $95 billion in April, ET reported.The rupee had slipped to a record low of 96.96 against the US dollar on May 20. According to market participants, repeated RBI intervention prevented the currency from breaching the psychologically important 97-per-dollar mark.The RBI’s record net short forward position underscores the scale of its intervention in the currency market as it sought to cushion the rupee from sharp swings during the month.On Tuesday, the rupee closed marginally weaker at 94.66 per dollar, compared with 94.54 in the previous session, as a stronger dollar index and modest foreign fund outflows weighed on the domestic currency, traders said.The rupee has since recovered from its record lows, aided by expectations of strong foreign capital inflows after the RBI and the Centre unveiled coordinated measures to attract overseas funds.Market participants expect inflows of $40-70 billion through the external commercial borrowing (ECB) route and Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit schemes.There is growing market consensus that the RBI could use these inflows to unwind its record net short forward position while also rebuilding its foreign exchange reserves, which currently stand at around $672 billion, below the record $728 billion touched in late February, according to ET.
