INDIA: RBI Reportedly Tweaks Currency Strategy as Liquidity Tightens

The RBI is reportedly tweaking its currency strategy by shifting focus on the onshore market in a bid to boost domestic liquidity. According to BBG reports, by dialling down bets in the NDF market and instead conducting more forward operations in the local market, the RBI can support the rupee without immediately depleting its foreign exchange reserves or draining liquidity from banks.

• While spot USD/INR settled in a narrow range during Friday’s session, short-end offshore borrowing rates have risen for a sixth straight day amid a shortfall in rupee liquidity/excess dollar liquidity after the RBI’s heavy rounds of intervention on Monday and Tuesday - which may have amounted to as much as $11bln.
• Reuters note that the central bank’s dollar sales pushed overnight swap rates higher which has had an impact on near-term forwards. According to data from Bloomberg Economics, India’s banking system liquidity was in a deficit of INR 2.5trln as of yesterday.
• Separately, during a press conference yesterday, President Donald Trump said Indian Prime Minister Narendra Modi agreed to begin negotiations to address the US trade deficit. However, Trump noted that “It’s very hard to sell into India because they have trade barriers, very strong tariffs.” Meanwhile, Modi's comments focused on growing overall trade between the countries, with a goal of doubling bilateral trade to $500bln by 2030.