Making Sense

 RBI released the November monthly bulletin.  Operations in the OTC segment show RBI net bought $ 4.36 bn of foreign currency and accumulated the long forward book to the extent of $ 8.25 bn with total outstanding forwards at $ 8.49 bn. RBI had unwound the forward book from a peak of $ 65.79 bn in March 2022 to $ 241 mn in Oct 2022 on FPI outflows and rising trade deficit.   You could refer to the  Oct 2022  data here. A quick look at the pattern of outstanding RBI forward book shows that in the last 2 years, RBI is seen paying forwards in the last quarter of the FY. In 2021, RBI's forward book swelled from o/s longs of $ 47.38 bn in Jan 2021 to $ 72.75 bn in March 2021. In 2022, a similar pattern was observed where the book swelled from $ 50bn in Jan to $ 66 bn in March 2022.  The above data leans towards a pay on dips strategy. Interest Rate differentials are the primary drivers of FX Swaps with other factors like system liquidity, intervention, econ...

 Goodmorning!! “A man is but a product of his thoughts. What he thinks he becomes.” - Mahatma Gandhi A quick wrap up of yesterday developments -  BoJ will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank. BoJ expanded the band around the 10Y yield target to +/- 0.50% from +/- 0.25% and increased the monthly bond buying under the new quarterly bond buying plan to yen 9 trn from earlier yen 7.3 trn. The move was attributed to improve the market functioning and formation of the yield curve. The JGB curve steepened with the 1x10 curve at 0.5350% from the earlier 0.34%. BoJ emphasized the current move as not a rate hike or policy accommodation removal. He also mentioned that he will be closely watching the next Spring's wage negotiations and the Trade Unions have announced a nominal wage growth target of 5%. However, the market does not believe the BoJ narrative and interprets the re...

"Trading requires skill at reading the markets and at managing your own anxieties"  - Ed Seykota The first thing I want to see in the monthly bulletin is the data on RBI Sale / Purchase of USDs and the change in forward position and the swap profile. The Oct Bulletin shows RBI has unwound the S/B Swap book. From a peak swap position of $ 73.21 bn as on March 21, the book now is a miniscule 241 mn. Upto 3 months, RBI is short USD forward and long USD forward beyond 3 months. RBI spot intervention stood at -922 mn.  In summary, since the start of FY, RBI spot intervention has been to the tune of $ 34.33 bn and forward intervention has been to the tune of $ 65.5 bn. Oct was the month when USDINR printed an all time high of 83.2850 and RBI exhausted the long forward position. The month of Oct saw fx reserves reach a 27 month low of $ 524 bn.