INR: Signs of significant RBI FX intervention in October – Nomura

Analysts at Nomura note that the Reserve Bank of India’s (RBI) FX reserves dropped by a sharp USD5.2bn in the week of 12 October 2018 (a USD5.9bn decline after adjusting for coupon and valuation effects).

Key Quotes

“On a weekly basis, this is the largest adjusted drop in FX reserves since the week of 24 October 2008. We believe this could mainly reflect USD selling activity, as it coincides with some sharp INR depreciation pressure following the RBI’s decision to leave rates unchanged on 5 October.”

“Indeed, reports suggest that authorities were actively defending the currency, as spot USD/INR reached a new all-time on 11 October (74.48) while foreign portfolio outflows totalled USD2.1bn that week.”

“Total FX intervention this year (spot + forward until August; estimated spot for September and October) is -USD37.8bn, which is 9.8% of FX reserves as of end-2017, while INR has depreciated by 12.8% against USD.”

“While external pressure – most significantly from oil prices – has diminished since mid-October, the risk of further INR depreciation remains, in our view. That said, we continue to expect active RBI intervention against sharp depreciation, while the announcement of additional measures to mitigate depreciation pressure remains a risk.”