The global market rout over the last two sessions has brought back the influence of offshore dollar/rupee rates on the onshore exchange rate as bets to take advantage of the difference between the two have increased sharply.
But the Reserve Bank of India need not fret over this resurgence in the impact of NDF as this influence is limited this time around, currency dealers said.
On Monday as stock markets across the globe crashed more than 5% with currencies hitting multi-year lows, punters on the Indian rupee had already begun taking advantage of the difference between the offshore non-deliverable forward and the onshore forward rate for the rupee. According to currency dealers, the difference between the three-month offshore dollar/rupee non-deliverable forward premium and the onshore premium was as wide as 40 paise on Monday. That of the one-month tenure was also around 15-20 paise.
In New York trade on Monday, the three-month NDF rate was around 67.60/$ but it fell to about 66.90/$ by the time Indian markets opened. The difference between the offshore rate and the onshore forward rate reduced to 8-10 paise on Tuesday after traders took advantage of the difference. While this arbitrage between the rates did exacerbate the rupee’s fall on Monday, the 1.3% depreciation of the currency was mainly due to a fall in stock and currency markets worldwide. “The fall of the rupee was a direct outcome of the global factors. The NDF, of course, is one of the factors,” said Brijen Puri, head of trading at JP Morgan Chase Bank.
An internal study by the RBI too has pointed out that the linkage between the offshore and onshore dollar/rupee rates is stronger during episodes of depreciation. Further, the perception of foreign investors about rupee assets also plays into NDF betting. The influence of NDF coupled with a negative view on rupee assets was the reason behind the rupee’s massive fall to the all-time low of 68.85/$ on August 25, 2014. At that time, the view of foreign investors on India was not favourable.