RBI Shifts Focus: Forward Market Intervention Crucial for Rupee Stability

• RBI's aggressive spot market intervention helped the rupee recover 1.03% on December 17, its strongest in seven months, after hitting record lows above 91/dollar.
• Spot intervention offers immediate support but depletes forex reserves and tightens rupee liquidity.
• Forward market intervention uses derivative contracts to influence expectations, avoiding immediate reserve depletion and liquidity impact.
• RBI increased its short dollar forward positions by $6 billion in September, signaling a strategic shift towards forward intervention.
• Rupee depreciation was driven by trade deal delays, foreign fund outflows, and sustained dollar demand; experts predict 89.70-90.60 range.

Why It Matters: RBI's shift to forward market intervention is crucial for rupee stability, balancing support with reserve management.