web analytics

India’s Currency Market Intervention Reaches 18 Month High In April

The Reserve Bank of India (RBI) went all out in April to ensure that the rupee's would not slide any further. The RBI sold a total of $6 billion in debt, the highest amount sold since November 2016. This was in response to the hardening of U.S. interest rates that caused a market sell-off that threatened the rupee's value.

The last time that the RBI intervened at this scale was back in November 2016, when it had to repay special deposits that it raised back in 2013.

The RBI sold a net debt in two different markets so that speculators would not be able to influence the derivatives market.

The first sale was done in the spot market and a net debt of $2.5 billion was sold while the next sale was in the forward market and resulted in a net debt sale of $3.5 billion.

In a statement, Saugata Bhattacharya, Axis Bank's chief economist, said

RBI intervened in forex markets in April using multiple instruments, to manage Rupee volatility. Tight domestic liquidity would have constrained spot foreign currency sales. This seems to have been supplemented by active intervention in forwards besides the roll overs and in the futures market. Intervention is likely to have continued in May, given that portfolio outflows were higher than in April

The net debt sell-off was necessary to stem the slide of the rupee. As of today, the currency has fallen six percent from its value in January. This is the result of the continued pull-out of funds by international investors from emerging markets like India.

India’s Forex Market Struggling

The forex market in India is also not doing well. A reported Rs 30,820 crore worth equities and bonds have been sold in the Indian foreign funds market. This is a big drop from 2017's net purchase of Rs 1.2 lakh crore. With the normalization of the US monetary policy by the Fed, investors are moving their money back to the US. It does not help that US Treasury yields have crossed the three percent mark. There are already expectations that the Fed will be raising interest rates again this week.

Other emerging markets have suffered from the movement of the US dollar and have responded accordingly.

For example, both India and Turkey have raised their own rates to try and stop investors from taking their capital out of the country. Argentina had to do something more desperate to control its money market. The country has requested $50 billion of emergency funding from the International Monetary Fund.

Related Articles

AMF Reports Drop In Forex & Binary Options Complaints

The French Financial Markets Authority (AMF) recently released its 2017 Annual Report which gives us some interesting insights into the

EU Forces Ireland To Collect €13bn In Back Taxes From Apple

Ireland is now being forced to comply with the legal requirements of the European Union (EU) that ordered Apple Inc.

UK inflation rises above 3% for first time since 2012

Traders can expect the Brexit news to lose prominence, at least temporarily, for the next few days as the market