Indian Companies Cut Forward Dollar Purchases to Eight-Month Low Following RBI Intervention

Indian companies have cut dollar purchases used to hedge against rupee weakness to an eight-month low. This shift indicates that the central bank’s recent crackdown on speculative bets against the currency is taking effect.

According to clearinghouse data, buying of forward dollars—commitments by companies to acquire the US currency at a later date—fell 35 percent in October from a record high the previous month, dropping to $49.5 billion. This figure is the lowest recorded since February and reflects how importers are managing potential losses from a weaker rupee.

The decline follows sweeping measures introduced by the Reserve Bank of India (RBI) to defend the rupee as it neared a record low. These steps include a foreign-exchange risk reserve, making it more expensive to build forward dollar positions. Despite costly oil continuing to strain India's external finances, these actions have helped ease pressure on the rupee, which has since risen about 2 percent against the dollar.

Madhavi Arora, chief economist at Emkay Global Financial Services Ltd., noted that these measures reflect policymakers' discomfort with persistent foreign-exchange pressures, though they remain tactical fixes rather than structural solutions.

The central bank's curbs show an increasing reliance on regulatory tools alongside direct market intervention to support the currency. Even after its recent rebound, the rupee remains among Asia’s weaker performers this year.

The intervention has also disrupted hedging markets, causing activity to freeze after the curbs took effect. The cost of buying insurance against rupee weakness rose to multi-year highs last month and remains elevated. This dynamic has the potential to reduce foreign investors’ appetite for local assets.

According to Norbert Ling, head of fixed income portfolio management for Asia Pacific at Invesco Hong Kong Ltd., this disruption can erode the yield advantage of domestic bonds for fully hedged investors. Overseas investors sold index-eligible bonds worth about $590 million in October, marking the second straight month of outflows despite recent tax funds for global funds.

The market disruption has similarly impacted exporters, who have held back from selling dollars forward to protect against a stronger rupee. Their forward dollar sales fell to $32.2 billion last month, the lowest level since May.

Despite these disruptions, regulatory interventions have successfully contained pressure in the forward market. Meanwhile, underlying demand for dollars remains elevated, with average monthly dollar purchases by importers climbing around 40 percent to $62 billion this year.

"The recent data highlights the direct impact of regulatory interventions on corporate hedging strategies and currency markets. While the Reserve Bank of India's measures have successfully eased immediate pressure on the rupee and reined in speculative forward dollar purchases, businesses must navigate higher hedging costs and market disruptions. For companies engaged in international trade, maintaining financial flexibility and adapting to these shifting regulatory frameworks will be critical in managing foreign-exchange risks moving forward." — Dr. Shishir Gupta, Founder & CEO, StartupLanes