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As per the latest data available, in Dec RBI has intervened through forwards in on-shore market to the tune of $13.9 bln, compared to $14.7 in Nov. Mind it, this is excluding intervention through futures.
The total net o/s forwards up to Dec end is now whopping $42.2 bln 
+ $1.9 bln in NDF. Yes, RBI has intervened in NDF as well in Nov and Dec. So it has left no instrument to stop the slide in USDINR - forwards, NDF and futures.
+ $1.9 bln in NDF. Yes, RBI has intervened in NDF as well in Nov and Dec. So it has left no instrument to stop the slide in USDINR - forwards, NDF and futures.
If one sees the spot and forward intervention trend, it is quite visible that from Nov onwards, RBI has become more active in forwards and futures. Obviously, one of the reasons is RBI does not want to add more liquidity in the system.
But this is not the full story.
Real flows cannot be completely sterilized through forwards. Against real flows, RBI has to buy dollar and pay INR in exchange. So who are the sellers in forwards?
There can be only two conditions under which so much of selling in forwards can happen. One by real hedgers (exporters) or second by speculators, who are getting attracted to INR because of higher carry.
The possibility of exporters front loading their long term hedges anticipating stronger INR, seems unlikely, given that trade deficit has started widening again. Dec trade deficit was almost $15 bln.
So who are these sellers, if not real hedgers (exporters)? The answer is self-explanatory.
Then the second question, where are these speculators from - on-shore or off-shore, and does it have something to do with domestic banks allowed to trade freely in off-shore.
Then the second question, where are these speculators from - on-shore or off-shore, and does it have something to do with domestic banks allowed to trade freely in off-shore.
Unless, RBI gets the carry lower and damages the price for these carry lovers, it is a fight in vain.
Finally, the bigger question, why to buy IGBs when one can get almost 5% carry in forwards only, which is a derivatives product, with a low volatility.
@ananthng
Finally, the bigger question, why to buy IGBs when one can get almost 5% carry in forwards only, which is a derivatives product, with a low volatility.
@ananthng
