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The Indian rupee staged a sharp recovery this week after sliding to record lows, aided by a series of regulatory interventions by the Reserve Bank of India that altered trading dynamics in the foreign exchange market. On Thursday, the rupee jumped 1.71 per cent to 93.21 against the US dollar, marking its strongest single‑day gain since December 2018 and one of the biggest advances seen since 2013.
The rebound follows a turbulent period that began with the currency touching an all‑time low of 95.22 per dollar on Monday, before policy tightening, restrictions on derivative activity, and limits on banks’ forex exposure forced a rapid reassessment of positions. As the dust settles after the RBI’s latest actions, questions remain over whether the current recovery reflects a sustainable shift or a temporary adjustment driven by forced unwinding and regulatory shock.
March 27: RBI Steps In – Friday’s First Line of Defence
The directive came at a time when the rupee had already fallen nearly 4 per cent, as the Iran war spillover, elevated oil prices and heavy foreign selling weighed on the currency. The measure was aimed at curbing excessive risk‑taking by banks and containing speculative build‑ups in the forex market.
March 30: Monday Sees Rupee Hits Lifetime Low
As the impact of tighter forex norms began to sink in, the rupee recovered sharply from intra‑day lows and opened stronger at 93.85 per dollar, signalling that the RBI’s actions were starting to influence market behaviour.
But, despite the RBI’s intervention, global pressures persisted, and on Monday the rupee briefly hit a fresh lifetime low of 95.22 per dollar.
April 1: RBI Tightens the Screws Further On Wednesday
The turning point came on Wednesday, when the RBI announced a fresh set of restrictions targeting derivative activity linked to the rupee.
- Banks were barred from offering non‑deliverable derivative contracts on the rupee to both resident and non‑resident users.
- Only deliverable forex derivative contracts were permitted, strictly for genuine hedging needs.
- Users were prohibited from offsetting non‑deliverable positions or re‑booking cancelled contracts.
- Banks were restricted from transacting forex derivatives with related parties.
These measures effectively shut down a key channel through which speculative positions were built, especially those contributing to volatility between onshore and offshore rupee markets.
April 2: Rupee Stages a Historic Comeback On Thursday
The impact of the RBI’s cumulative actions was most visible on Thursday, when the rupee surged 1.71 per cent to 93.21 against the dollar.
- The sharpest single‑day gain since December 2018.
- One of the largest daily advances for the rupee since 2013.
The rally reflected large‑scale unwinding of positions, reduced dollar demand, and a sudden shift in expectations as market participants adjusted to tighter regulatory oversight.
How Markets Read the Move
Brokerage commentary highlighted the scale of the change. According to Jefferies, the RBI’s tightening, particularly the $100 million NOP cap, came as a surprise to the banking sector and likely forced the unwinding of USD 30–40 billion in positions.
The brokerage noted that:
- Banks could face mark‑to‑market losses in the fourth quarter of FY26.
- A Rs 1 move in USD‑INR could translate into Rs 30–40 billion in sector‑wide impact.
- Large private and foreign banks are the most exposed.
- The widening onshore‑offshore spread of 75–90 basis points played a critical role in triggering regulatory action.
At the same time, forced unwinding of positions was seen as a near‑term support factor for the rupee, even as banks seek relief or exemptions for existing contracts.
Are These Levels Here to Stay?
While the rupee’s rebound has been swift and significant, sustainability remains an open question. Much of the recent strength has been driven by regulatory shock and position unwinding rather than a structural improvement in external conditions.
Bhansali further added that the current measures taken by RBI are a temporary relief for rupee in which RBI is still sitting short and needs to buy, oil and FPIs are still equity sellers and dollars buyers.
19 year yields are at 7.11 per cent highest in 1 year and oil at USD 110 and dollar index again above 100, he cited as pressure points for Rupee. “The war is not finishing as US and Israel are both adamant on their respective stands and don’t think this is going to resolve early,” Bhansali added.
Oil prices remain elevated, geopolitical risks persist, and foreign investor flows have yet to stabilise meaningfully. Going forward, the rupee’s trajectory is likely to depend on whether volatility remains contained after the initial adjustment and whether global risk sentiment improves. For now, the RBI has demonstrated its willingness to act decisively, but whether that is enough to keep the rupee elevated will be tested in the weeks ahead.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
