RBI's $200B Dollar Short Fuels India's USD/INR Focus
The Reserve Bank of India's (RBI) net short dollar position in forward contracts has surpassed $200 billion, driven by diaspora deposit inflows to support reserves and the rupee. This surge has made tracking the USD/INR pair as crucial as monitoring Bitcoin price charts for Indian cryptocurrency traders, as rupee moves can significantly affect INR-based crypto returns. By the end of August, RBI's outstanding net short dollar position in its FX forward book hit a record $200.06 billion, a sharp rise of about $63.3 billion from the $136.77 billion high recorded at the end of July.
The surge was mainly driven by RBI's special USD-INR swap facility for Foreign Currency Non-Resident (Bank) deposits and overseas borrowing, which led to significant inflows of dollars in the banking system. For Indian crypto traders, USD/INR is emerging as a second variable, as the final returns are in rupees. A Bitcoin position is virtually leveraged to $BTC/USD × USD/INR, and so a rupee movement can alter the value of an INR position, even when the dollar price of Bitcoin is held constant.
The RBI's record forward dollar position through swaps and other FX operations has made USD/INR an important market variable for Indian crypto traders. Even if Bitcoin stays flat or falls slightly in dollar terms, it can still show different numbers for Indian traders when calculated in INR, due to the varying USD/INR rate. At press time, $BTC was trading at $83,585.58, up roughly 6-6.5% in September in USD terms, but the INR value of one $BTC was close to ₹8.01-8.03 million, depicting the varying returns of a $BTC price for Indian traders.
The RBI is expected to continue using sell/buy swaps to drain liquidity and bring forward some of its longer-dated short positions, which will keep the RBI active in the USD/INR market for months. For traders whose performance is measured in Indian rupees, this means USD/INR is not background noise, but a live risk factor and sometimes an opportunity, in addition to the price of Bitcoin itself.
Indian crypto traders should set their sights near the recent highs and lows of USD/INR, check the daily $USDT/INR premium/discount, and check $BTC/USD only after adjusting for the currency move. The overall large short position of RBI means that its moves will continue to have an impact on the returns of crypto assets in INR for the foreseeable future.