MUMBAI (Diya TV) — The Indian rupee staged a sharp rebound Thursday after strong action by the Reserve Bank of India (RBI) sparked expectations of heavy dollar sales. The sudden move also forced banks to quickly exit trades that were once seen as low risk. The rupee rose to 93.53 against the U.S. dollar in early trading. It gained 1.4% from its previous close. Traders rushed to adjust positions as the market anticipated a surge in dollar supply within India.
The rally followed a series of tightening measures by the RBI aimed at curbing speculation. The central bank acted to stabilize the currency after weeks of pressure driven by rising oil prices and global uncertainty. Late Wednesday, the RBI barred banks from offering rupee non-deliverable forwards (NDFs) to both local and foreign clients. It also stopped companies from rebooking canceled forward contracts.
These steps shut down a major arbitrage channel between onshore and offshore markets. Many companies have used this route to profit from price differences. Earlier this week, the rupee had fallen to a record low of 95.21 against the dollar. Market participants said the RBI’s move forced banks to reduce large arbitrage positions. Estimates suggest these positions had grown to between $30 billion and $40 billion.
Banks now face rising pressure to unwind their trades. A senior treasury official at a private lender said the market expects banks to exit quickly, even if it leads to losses.“The market knows banks need to cut positions and have little choice,” the official said. “Pricing will be punitive.”
Traders reported that banks had already unwound about 50% to 60% of these positions earlier in the week. However, a large portion remains, especially among state-run banks. The exit process has become more costly. The gap between onshore forward rates and offshore NDF markets has widened again. In the one-month segment, the spread has reached nearly 100 paise. A wider spread increases the cost for banks trying to close positions. It also raises the risk of mark-to-market losses in the short term.
The RBI’s intervention comes as external pressures on the rupee remain strong. Crude oil prices have surged due to rising tensions in West Asia. Brent crude futures climbed about 5% to around $106 per barrel. Higher oil prices create two major challenges for India. They increase the country’s import bill and widen the current account deficit. They also push up inflation, as India depends heavily on imported oil.
Global uncertainty has added to the pressure. Concerns about geopolitical tensions have made investors cautious. This has led to higher demand for the U.S. dollar, which often weakens emerging market currencies like the rupee.
Analysts say the RBI’s latest actions show a clear shift in strategy. The central bank now aims to tighten speculative flows and regain control over currency movements.“The RBI has clearly moved to plug loopholes,” said Kunal Sodhani, head of treasury at Shinhan Bank. “These steps strengthen its efforts to stabilize the rupee.”
The measures signal that the RBI will act decisively to prevent excessive volatility. By restricting arbitrage opportunities, the central bank hopes to reduce sudden swings in the currency.
