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RBI acts in forwards market to protect forex reserves, pulls down premiums

This move by the central bank results in premiums crashing

Photo: Bloomberg
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Photo: Bloomberg

Bhaskar Dutta Mumbai
The Reserve Bank of India’s (RBI’s) recent decision to take advance delivery of outstanding long-forward dollar positions points to its desire to protect the fast-depleting foreign exchange (forex) reserves, analysts said. The RBI’s actions have triggered a sharp decline in dollar/rupee forward premiums.

Currency analysts who spoke to Business Standard said at a time when significant dollar strength has been pushing the rupee to record lows, the RBI may be wishing to ensure that its forex reserves do not drop below a certain level.

“I think because we saw a precipitous headline fall in the reserves from $640 billion to