RBI is trying to shore up the rupee by stamping out some of the most popular ways to bet against it, after direct intervention in the market failed to arrest a slide to a record low.
The rupee advanced as much as 1.8 per cent to 93.1413 per dollar on Thursday — the most since September 2013 — as currency trading resumed after a two-day break. The gains came despite broad weakness across most regional currencies, as US President Donald Trump offered no clear timeline for an exit from the Iran war in a primetime address.
RBI shores up rupee
The Reserve Bank of India said late Wednesday that authorised dealers were prohibited from offering some non-deliverable contracts involving the rupee to resident or non-resident users. Banks can still offer deliverable FX contracts for hedging, but users can’t offset those trades with positions taken offshore, it said in a statement.
The central bank is trying to shore up the rupee by stamping out some of the most popular ways to bet against it, after direct intervention in the market failed to arrest a slide to a record low. Traders have typically used offshore derivatives known as non-deliverable forwards, and arbitrage trades — buying dollars onshore and selling them in the NDF market — to build short positions.
“In the near term, it is a huge positive for the rupee as it will bring down the level of speculation,” said Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services. The move will impact about 70% of market players who can bet against the currency, he said.
The new rules take effect immediately and come just days after the RBI capped lenders’ daily onshore currency positions at $100 million. The directive sent banks scrambling to unwind at least $30 billion of arbitrage trades. People familiar with the matter estimate that between $4 billion and $10 billion have been unwound so far.
The earlier curbs offered only brief support for the currency. The rupee initially jumped on Monday before reversing and sliding to the weakest level on record in volatile trading, with the gap between the day’s high and low the widest since 2013.
On Wednesday, the RBI told banks not to let clients rebook any forex derivative contracts — deliverable or non-deliverable — once canceled. The move is meant to prevent traders from endlessly rolling over speculative bets and force them to actually close them. Banks were also told not to undertake such contracts with their related parties.
India has been among the hardest hit by the Middle East conflict and rising commodity costs. The rupee had weakened more than 4 per cent in the month after the Iran war broke out, hitting successive lows, as the surge in oil prices strains the import-heavy economy.
The offshore NDF market is large and often sets the tone for rupee pricing. Average daily offshore trading in the rupee across Singapore, the UK, the US and Hong Kong was about $149 billion in 2025, according to the Bank for International Settlements — more than double the $72 billion traded onshore.
The stronger measures come with a side effect: they have driven up the cost of hedging exposure to Indian assets, according to Rajeev de Mello, global macro portfolio manager at Gama Asset Management.
“When implied rates rise, foreign investors are compelled to sell their government bond holdings and unwind their hedges,” he said. Weaker foreign demand for sovereign debt could drive up the cost of borrowing across the economy, he added.
Foreign investors are already shunning local bonds, pushing up the benchmark yield to a two-year high. They’ve withdrawn a record $1.9 billion from the country’s index-eligible bonds in March.
Other tools
Meanwhile, much of the currency arbitrage trade still needs to be unwound before an April 10 deadline set by the authorities. With currency and bond markets shut again on Friday, much of this week’s price action will be packed into today’s session, raising the stakes for volatility.
Bank shares declined, with the NSE’s sector gauge falling as much as 2.9 per cent to its lowest in almost a year, as the central bank’s moves raised fears of mark-to-market losses on their foreign currency trades.
If the rupee remains under pressure, the RBI has other tools it can deploy, including tighter capital controls or limits on foreign investors’ ability to take money out of the country — steps that may support the currency but risk denting India’s investment appeal.
Jefferies analysts Prakhar Sharma and Vinayak Agarwal said the RBI likely acted because earlier measures had limited impact, and the latest steps make the rules more “water-tight.”
“Still, we believe that sudden & retrospective changes to rules, while appropriate in the current extreme situation, may affect the depth of rupee forex trading over the medium- to long-term,” the wrote.
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Published on April 2, 2026