India’s dollar hedging falls to eight-month low as RBI curbs speculation
Forward dollar buying by Indian companies dropped 35 per cent in October following regulatory measures taken by the Reserve Bank of India.
Indian companies reduced their forward dollar buying to an eight-month low in October, according to clearinghouse data reported by Mint.
The volume of commitments to acquire US currency at a later date fell 35 per cent to $49.5 billion in October, down from a record high the previous month. This decline reflects importers seeking to protect themselves against a weaker rupee.
The drop follows measures taken by the Reserve Bank of India (RBI) last month to defend the rupee. These steps, which include a China-style foreign-exchange risk reserve, have increased the cost of building forward dollar positions. Since these interventions, the rupee has risen about 2 per cent against the dollar.
Madhavi Arora, chief economist at Emkay Global Financial Services Ltd, said the measures reflect policymakers' discomfort with foreign-exchange pressures but described them as tactical fixes rather than structural solutions.
The intervention has also affected exporters, whose forward dollar sales reached $32.2 billion last month, the lowest level since May. Meanwhile, overseas investors sold index-eligible bonds worth approximately $590 million in October.
Norbert Ling, head of fixed income portfolio management, Asia Pacific at Invesco Hong Kong Ltd, said that for fully hedged investors, elevated insurance costs against rupee weakness can erode the yield advantage of domestic bonds.