Wary of RBI, banks back off from forex deals

Banks in India have stopped buying and selling foreign currencies, a move that reflects their caution about the Reserve Bank of India's policies. This decision is significant because it affects the country's foreign exchange market, where banks had been actively buying dollars and investing in US Treasury bills to earn higher returns. The banks' withdrawal from these deals may impact the rupee's value and the overall economy, as the easy rupee liquidity created by these transactions has been a key factor in the market.

Why it matters

Banks are being cautious with forex deals due to concerns about the RBI's potential actions, which may impact the rupee's value. This caution may lead to reduced investment in US Treasury bills.

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