RBI’s Short Dollar Book Surges Past $200 Billion on Forex Plan

The Reserve Bank of India’s net short dollar book rose past $200 billion for the first time, reflecting surging future repayment obligations from a dollar diaspora program to support the rupee.

The positions increased by $63.3 billion to $200.1 billion in August, largely driven by an increase in contracts maturing more than a year from now, Bloomberg calculations from the RBI data show. Short positions in that maturity rose to $176.6 billion from $91.5 billion, the data showed.

The $133 billion of inflows from the diaspora deposits have bolstered the country’s foreign-exchange reserves, will help keep the balance of payments in surplus after two years of deficits and give the central bank greater firepower to support the rupee after it plunged to a series of record lows in May. The RBI has already stepped up intervention, with the latest data showing reserves fell by the most in almost two years as it sought to support the currency.

The inflows have also increased liquidity in the banking system, with excess cash surging to as high as 11 trillion rupees earlier this month. The RBI has been conducting sell/buy swaps in the secondary market to drain cash, which also helps in lowering its short book. The tenor of up to one month has flipped to a net long of $12.12 billion from a short book of $13.2 billion in July, the data showed.

“One thing the RBI has been reportedly trying is to prematurely unwind the maturities that were due around next year,” said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership Ltd. That would help soak up excess cash, though it’s still small compared with the overall forward book, he said.

The central bank will have to repay these dollars once the deposits mature in three to five years. The record-breaking diaspora fundraising drive may prove costly for the country’s central bank, leaving it with a potential $10.6 billion price tag, according to economists.