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MUMBAI: The rupees wild gyrations have triggered big opportunities for arbitragers, as the gap between onshore and offshore forwards markets has nearly trebled in two-three weeks to 15-16 paise on Wednesday.

Large companies and institutions rushed to make use of the opportunity, selling dollars offshore only to buy onshore. This should either help them recover their losses incurred in the rupees latest sharp drop or make provisions for rainy days.

“The rupee has been swinging sharply with the RBI intervening intensely sometimes,” said Anindya Banerjee, a currency analyst at Kotak Securities. “This has triggered speculative bets with a section of well-heeled market participants tapping arbitrage opportunities. The intensity will rise unless global macro factors like US Treasuries or oil prices stabilise.”

The gap was about 5-6 paise three weeks ago, when the rupee was trading in the range of 65-66 to a dollar.

Under the arbitrage mechanism, those who bet on spread are selling dollars through the overseas one-month contracts in the non-deliverable forwards market, the overseas derivative platform that functions over the counter round the clock. They then buy the greenback in the onshore over-the-counter market.

Intense arbitrage trades may distort the currency market, leading to wild moves.

The rupee gained nearly half a percent to close at 67.80 a dollar on Wednesday amid intense RBI intervention. Some state-owned banks were seen selling dollars on behalf of the central bank, a move that helped the local unit erase its early losses.

During the day, the rupee traded near a 16-month low at 68.13. It plunged to intra-day low of 68.14 Tuesday, its weakest level since January 2016.

“The arbitrage opportunity is quite sharp but this time, diamond traders were not so active to seize this opportunity,” said a treasury head from a large bank, speaking on the condition of anonymity as he is not authorised to talk to the media.

The fallout of the countrys biggest banking fraud — the Punjab National Bank scam involving diamond trader Nirav Modi — has made them cautious amid regulatory supervision, dealers said. It is only large companies with strong financials are tapping such opportunities now.

So far in May, the rupee has swung in a wide range of 66.53-68.14 with traders frequently changing their strategies. A cocktail of factors including rising crude oil prices, higher US Treasury yields, global dollar strength and state elections has triggered panic among investors, who were seen shifting to dollar-backed assets.

“We are taking small positions as we are not sure of the market directions. Even the authorities too are keeping a close watch to spot any unusual move,” said a currency trader with a foreign bank.

The RBI is believed to have called top banks to enquire about their positions and seeking their outlook.

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