Read on Twitter
Jio got the CCI approval today for FB investment. Since the announcement, there has been a lot of market gossip, if FB dollar has hit the onshore market or not. https://twitter.com/ETNOWlive/status/1275759394362281984
Normally money does not hit the Indian shores without having all the regulatory clearances in place. But it raises an interesting point - if money has not flown, who have been supplying dollars to RBI all this while?
Becasue, if someone extrapolates BoP for first 2 month, it does not adds up to $30 bln, which has been mopped by RBI since March end. Even if one excludes the valuation impact, net accretion would not be less than $25/26 bln.
A rough calculation suggest that BoP for same period (April & May) to be not less than $15/16 bln. The break-up to be as follows:
Current Account - $8/9 bln
Capital Account - $7/7.5 bln
Total - $15/16 bln
Current Account - $8/9 bln
Capital Account - $7/7.5 bln
Total - $15/16 bln
So who this extra dollar - $9/10 bln ($25-$15) belongs to?
Let's take a deep dive.
Let's take a deep dive.
India trade deficit for first two months is -$9.8 bln (numbers out) and net invisibles including investment income adds up to $18 bln, assuming
Software exports - $13 bln
Private Remittance - $10 bln
Invst. Income - (-)$5 bln
So CA balance to be positive $8/9 bln.
Software exports - $13 bln
Private Remittance - $10 bln
Invst. Income - (-)$5 bln
So CA balance to be positive $8/9 bln.
On capital side, assumed
Net FDI at $3bln (April FDI at $1.36 bln)
FPI flows at negative $0.5 bln until last Friday.
ECB and NRI fresh deposits at $1 bln each for April & May, and
Trade credits to be $1 bln.
So on net basis, capital flows adds up to $7.5 bln.
Net FDI at $3bln (April FDI at $1.36 bln)
FPI flows at negative $0.5 bln until last Friday.
ECB and NRI fresh deposits at $1 bln each for April & May, and
Trade credits to be $1 bln.
So on net basis, capital flows adds up to $7.5 bln.
The only place, where I can be wrong is on FDI number for May and first row weeks of June but doubt if people would have actually moved the entire money across the border though may have signed on the paper.
So it brings to my first question - who this extra dollar belongs to?
Since RBI FX accretion is in cash & not in fwds, it only means RBI has absorbed system excess dollar which indirectly also helps RBI to keep dollar bid until June end & inject rupee liquidity thru FX.
Since RBI FX accretion is in cash & not in fwds, it only means RBI has absorbed system excess dollar which indirectly also helps RBI to keep dollar bid until June end & inject rupee liquidity thru FX.
IMO, RBI cannot afford to let rupee appreciate below 75.25/75.50 until month end, for the obvious reason as it has to meet the new capital framework. However, post June 30th, RBI MAY allow rupee to appreciate, if market forces demands so.
Interestingly, this may also open more more space to RBI to shift its focus from FX to bond and may announce OMO which mkt has been anticipating for a while, for the simple reason allowing b/s to expand on account of both FX and OMO wud have been too much to handle and meet ECF.
