The build-up of positions in this segment of the market is forcing the RBI to spend more reserves to defend the rupee, one of the bankers said.
The RBI had probably assessed that the NDF was "nullifying the impact of their intervention," and was increasing liquidity in the forward market, both of which it does not want. Anindya Banerjee, head of research -forex and interest rates at Kotak Securities, said. "When you arbitrage, you use dollar leverage and that, we think, has become a concern for the RBI," said Abheek Barua, an economist at HDFC Bank.
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