The Reserve Bank of India (RBI) has stepped up measures to control rupee volatility following a nearly 10% decline against the dollar in FY26, officials said. The central bank is increasing oversight of foreign-exchange markets and tightening rules for banks in the non-deliverable forward (NDF) segment, a major driver of onshore currency movements.
The offshore NDF market, largely based in Singapore and London, operates outside the RBI’s direct regulatory reach. “The impact of the NDF market has significantly diminished but has not completely disappeared,” said Anindya Banerjee, head of commodity and currency research at a financial services firm. Volatility in offshore markets can still influence onshore rupee movements, though recent regulatory curbs have reduced arbitrage flows.
Since early March, the rupee fell about 4.5% from 90.98/$ to 94.81/$ by March 27. The RBI reportedly sold $15-20 billion to limit the decline, but the currency continued weakening. Late on March 27, the RBI asked banks to cap their net open foreign-exchange positions at $100 million from April 10. The next day, the rupee touched a new low of 95.22/$.
On March 31, the RBI further prohibited banks from offering rupee NDF contracts to clients and barred rebooking of any cancelled foreign-exchange derivatives. Banks began unwinding NDF positions, reversing previous arbitrage trades, and stabilising the INR/dollar rate. From April 2, the rupee strengthened to 93.06/$, about 2.2% firmer than the March 31 close.
Despite these measures, experts caution that during high volatility, RBI’s influence on offshore NDFs remains limited. The central bank’s forward book reached around $77 billion by end-February, its highest in 11 months, to help stabilise the rupee. Arbitrage opportunities, though narrowed from 25 paise to about 10 paise for a one-month tenor, persist, particularly for foreign institutional investors hedging via NDFs.
Traders say that with price discovery in NDFs increasingly shaped by global participants, offshore market activity will continue to influence onshore rupee movements, especially during periods when domestic markets are closed.
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