The Reserve Bank of India (RBI) has implemented new measures to defend the Indian Rupee (INR), barring banks from offering rupee non-deliverable forward (NDF) contracts to both residents and offshore users, while keeping deliverable hedging channels open [1]. According to DBS Group Research economist Radhika Rao, this move is intended to curb speculative trades and follows a recent change in the FX playbook, with the latest tightening announced late Wednesday [1]. The RBI's notification aims to close the arbitrage window between the onshore and NDF markets, which had seen increased corporate interest after the previous directive prompted banks to unwind positions [1]. The RBI had earlier sought to limit banks’ daily net open positions in the onshore deliverable rupee market, effective April 10 [1]. Rao notes that these measures are expected to further widen the gap between onshore and offshore markets [1]. Despite a strong open for the INR anticipated when trading resumes on Thursday in a holiday-shortened week, structural concerns remain. Markets are closely watching geopolitical developments, including a recent jump in oil prices following a US speech, which could keep the rupee under pressure, especially given the risk of a third consecutive year of balance of payments deficit [1].
CONCLUSION
The RBI's latest restrictions on NDF access are designed to curb speculative activity and stabilize the rupee, but may increase the divergence between onshore and offshore markets. Ongoing geopolitical risks and balance of payments concerns suggest continued pressure on the INR, with market participants remaining cautious.