Secondly, several liquidity withdrawal schemes. Thus, daily CRR maintenance raised to 99% and simultaneously to tight liquidity in the system the RBI has announced a Rs 25,000 cr OMO sales. However, along with such, the RBI has introduced a Foreign Exchange Risk Reserve/FERR. Dealers will now be required to maintain with the Reserve Bank an FERR in cash, equal to 20% of the INR equivalent of the notional amount of each transaction for derivative transaction with notional value greater than $2 million. The average monthly notional merchant forward sales are of the magnitude of US$46.94 billion. If 10% of the notional is conceived to be less than $2 million, then at ₹95 per dollar, we estimate that around ~Rs 80,000 crores, could be required as reserves against fresh contracts, albeit on a rolling basis (if monthly average notional remains the same going forward). This is a large amount indeed. Hence, overall, these measures could suck out amount in excess of Rs 1 lakh cr from the banking system over a longer period.  

Thirdly, RBI’s swift move to cap the currency derivative position from $100 mn to $5 mn and restricting corporates to rebook cancelled forward contracts, appears more aligned to ‘cutting the crap’ surreptitiously stitched in currency movement. There should definitely be a marked drop in activities in NDF market but much of this will ultimately depend on the risk drivers affecting the global markets and how EM currencies gyrate against a nonchalant Greenback. Furthermore, FX transactions data shows that cancellation have increased sharply indicating that exporters have renegotiated after sharp rupee depreciation. Allowing not to rebook any foreign exchange derivative contract involving INR, will bring back export proceeds. 

While the RBI has been taking all possible steps to thwart a seemingly difficult global playbook, there is an urgent need also by the Government to address some of the long pending structural issues regarding capital inflows. Most importantly, the question is will Brent prices cool off along with US/global yields? The recurrent neural network forecast for both dated Brent and Indian baskets show a rising trend. This indicates that sharp fall in oil prices is unlikely and a decline is possible only over a longer term. Elevated geopolitical and supply-side risks, Brent rises in forecasts from around $ 103.4 per bbl to $110 per bbl while the Indian basket increases from about $127 per bbl to $ 130 per bbl over the forecast horizon of 10 trading days. On US yields, our central view is hardening bias in 10–30 year yields over the next 3–6 months. For the benchmark 10-year, a rise looks more plausible than a sustained decline, with moderate conviction. Lower yields remain a conditional outcome requiring clearer disinflation or weaker US activity. The second option is likely.  

To sum up, India’s foreign exchange reserves even under the most stressed scenarios are more than adequate to meet any contingencies. However, BOP surplus now looks increasingly thinner at around $55-$60 bn in FY27.