The rupee surged 1.82% on Thursday to close at 93.10 against the dollar—its biggest single-day gain in over 12 years—after the Reserve Bank of India (RBI) cracked down on speculative activity in offshore non-deliverable forward (NDF) markets. The rupee also emerged as the best-performing Asian currency for the day.
During intra-day trade, the currency strengthened further to 92.83 as banks began unwinding long dollar positions.
Aggressive Unwinding
“Banks have now started unwinding positions aggressively. They held off on Monday to avoid impacting financial year-end P&L, but with no relief from the RBI, they are unwinding now,” said a dealer at a state-owned bank. Currency traders estimate that positions worth around $10 billion were unwound during the day.
Just days after tightening banks’ local currency limits, the RBI on April 1 extended those curbs and barred lenders from offering certain offshore foreign exchange derivative contracts to both resident and non-resident clients.
The central bank has also prohibited the rebooking of any forex derivative contract—deliverable or non-deliverable—once cancelled.
These measures come after sustained pressure on the rupee following the escalation of the West Asia conflict. The currency fell 4.24% in March alone and breached the 95-per-dollar mark for the first time on March 30. Overall, the rupee declined 10.96% in FY26, marking its steepest annual fall in 14 years.
In a separate move to curb speculation, the Clearing Corporation of India (CCIL) imposed a 25% volatility margin on dollar-rupee forward trades with immediate effect. The additional margin is expected to increase overall margin requirements, and the clearing house has asked members to keep their margin accounts adequately funded.
“Global shocks hit offshore NDF markets harder than onshore due to heavier speculation. The RBI’s new rules curb this, providing them better control over the exchange rate. It also enhances the effectiveness of reserve interventions—in recent weeks, despite heavy reserve drawdowns, the impact had been minimal,”said Dhiraj Nim, FX strategist & economist at ANZ Bank.
Cost of Stability
These RBI measures, while effective in stabilizing the rupee amid West Asia tensions, come at a cost. These somewhat contradict their push to internationalise the rupee. But given the tough times and traditional measures have not been working well, they had little choice but to act, said market participants. Earlier, on March 27, the RBI directed banks to cap their net open rupee positions in the onshore deliverable forex market at $100 million by the end of each business day, with compliance mandated by April 10.
“This unwinding will drain liquidity from the market and may distort pricing, as it could lead to a delinking of onshore and offshore markets,” said Ritesh Bhansali, Deputy CEO at Mecklai Financial Services. He added that such distortions are already visible in forward premiums, which have risen despite expectations of a decline.
The unwinding of arbitrage trades pushed forward premium rates higher, with the premium rising 71 basis points to 3.66% on Thursday—the highest since 2022.
Traders expect further gains in the rupee, projecting a near-term range of 92.50–93.50. However, sustaining the appreciation may prove challenging amid ongoing geopolitical uncertainties.