HomeEconomy NewsRBI watchers say central bank's reserves set to jump as it takes delivery of forward dollars

RBI watchers say central bank's reserves set to jump as it takes delivery of forward dollars

On rate hikes, informed sources said the RBI is likely to bring the repo rate to the pre-COVID level of 5.15 percent (from 4.4 percent currently) by spreading the hikes over the June and August policies, rather than by hiking in one shot by 75 bps in June, as some bond dealers feared.

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By Latha Venkatesh  May 11, 2022, 10:17:34 PM IST (Updated)

RBI watchers say central bank's reserves set to jump as it takes delivery of forward dollars
A day after the Reserve Bank of India (RBI) intervened in the forwards and non-deliverable forwards (NDF) markets to slow down the depreciation of the rupee, central bank watchers have said the RBI’s reserves are comfortable and are set to rise in the coming weeks as the RBI takes delivery of nearly $70 billion in maturing forwards. They added that the dip in reserves to below $600 billion was more on account of a fall in the mark-to-market (MTM) value of RBI’s non-dollar currency reserves.


The euro and the yen had fallen sharply versus the dollar in April and May. Veteran RBI watchers also told CNBC-TV18 that the central bank never targets any rupee level but intervenes only to smoothen volatility. This was in response to buzz that RBI will not allow the rupee to depreciate below 77.50/$.




Also read: These big Indian companies are preparing for a much higher interest rate hike by RBI




In the bond markets too, RBI intervenes by signaling through the cut-offs in auctions and its decisions to devolve auctions, these veterans said. They rubbished reports that the government had instructed the RBI to buy bonds via open-market operations (OMOs) and said the RBI itself probably prefers to help the government borrowing programme through enduring steps like upping the HTM (held to maturity) limits of banks. This helps banks buy bonds without fearing MTM losses when  bond prices fall.

On rate hikes, informed sources said the RBI is likely to bring the repo rate to the pre-COVID level of 5.15 percent (from 4.4 percent currently) by spreading the hikes over the June and August policies, rather than by hiking in one shot by 75 bps in June, as some bond dealers feared.

These experts believe inflation is still due to supply constraints, but like other global central banks, RBI too may have to raise rates to control demand over the next 6-8 months to bring down inflation.

Also read: Coinbase CEO says exited India crypto market in three days due to 'informal pressure from RBI' but will return
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