Strong co-relation between NDF markets & spot rupee, admits RBI



Get instant notifications from Economic Times Allow Not now You can switch off notifications anytime using browser settings. Technicals Technical Chart Visualize Screener. It points out that "during the period of depreciation, shocks originating in the NDF market may carry more information, which gets reflected in the onshore segments of the market through mean and volatility spillovers. The premium for one-year forward contract jumped 7 basis points on Tuesday to around 4. Modi's pre-poll sops may take toll on India's fiscal health Updated:

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A feature in AirPods can let users eavesdrop on conversations. National Entrepreneurship Awards Vodafone Business Services Digilogue - Your guide to digitally transforming your business. The findings, summarised in the central bank's annual report released on Thursday, show there is a strong co-relation between movements in the NDF and Indian spot rupee, particularly when the domestic currency is under pressure.

The government, sources said, has learnt that half a dozen MNC banks have built huge short positions on rupee in the offshore NDF market and this is adding to the bearish sentiment on the Indian currency.

These banks are betting on the rupee crossing 70 with their currency forecast and client notes released by their respective research teams influencing the market mood. There are certain plans to plug the NDF loophole," said a government official. As the name suggests, all NDF deals are forward transactions settled in dollars because the rupee, being a non-convertible currency, cannot be 'delivered' outside India. It's an open secret in the currency market that large FIIs, MNC banks and corporate houses with offshore trading capabilities cut arbitrage deals - buying one-month forward in India and selling in NDF - to cash in on the difference.

And the impact of such offshore trades seeps into the Indian market and moves the spot rupee-dollar exchange rates here. The RBI study concludes that there is a likely spill-over effect from one currency market to another either in form of returns or volatility. It points out that "during the period of depreciation, shocks originating in the NDF market may carry more information, which gets reflected in the onshore segments of the market through mean and volatility spillovers.

The study, RBI says, was undertaken "recognising the fact that information flows between off-shore NDF and on-shore markets can affect movements in both markets.

This certainly is having a huge pressure on the rupee. However, only a bank that has its registered office outside India is allowed to place orders in the NDF market. Mostly big corporate institutions use the arbitrage opportunity to make money using the prevailing negative sentiments. The rupee on Tuesday crashed to new low hitting It ended at The home currency opened at Real GDP growth hit a two-year high of 8.