A central bank directive issued late on Friday could break the rupee’s fall. The Reserve Bank of India (RBI) has asked banks to cap their net open positions in the rupee at $100 million at the end of each business day, effective April 10, a move that’s likely to trigger position unwinding.
Traders said the rupee could rise to the 93.50-94.50 per dollar range, implying gains of 70-100 paise from current levels. The rupee closed at an all-time low of 94.81 per dollar on Friday.
“I expect there to be volatility and heavy dollar sales on Monday, which leaves room for the rupee to appreciate by 70-100 paise,” said Anshul Chandak, head of treasury at RBL Bank. “But the gain can be temporary and momentum can also be lost once these positions get neutralised.”
Traders warned that if the conflict in West Asia persists and crude oil prices remain elevated, the focus could quickly shift back to the 96-97 per dollar range in April, as the next zone of pressure.
The directive comes as the rupee has tumbled through key psychological levels in quick succession, pressured by surging crude oil prices amid concerns that the war in the Gulf may not end soon.
The currency has depreciated about 10% this fiscal year and roughly 3.5% since the conflict began. It was trading at 85.57 a dollar on April 1, 2025, and had weakened to 90.98 by February 27, a day before the conflict started.
Most large and mid-sized banks with net open positions exceeding $100 million are expected to sell dollars to comply with the RBI directive, traders said.
While such unwinding is likely to support the rupee, it could also result in mark-to-market losses for banks.
ET was first to report on March 29 that banks had lobbied the central bank on Saturday to apply the rule only to incremental positions after April 10, as aggregate net open positions are estimated at around $40 billion.
Traders said that if the gap between rupee-dollar rates in the offshore non-deliverable forwards (NDF) market and the onshore one widens to Re 1, banks could face losses of up to ₹4,000 crore. These losses could be reflected in banks’ books for the current fiscal year, as they had earlier calculated open positions after netting off hedged trades in the NDF market.
“The Middle East situation is now in uncharted territory. That leads to unconventional policy actions. A move on sharp reduction of Indian banks’ open FX positions in a short period seems to be in that category,” Uday Kotak, founder and director at Kotak Mahindra Bank, said on social media.
“Reminds me of Bimal Jalan play book as RBI governor in 1998 when the rupee was depreciating sharply post Asian crisis. If things get worse geopolitically, is there an opportunity for a new version of FCNR( B) scheme?”
The treasury head of a large private-sector bank said many positions had been built around arbitrage trades, with dealers going long on the dollar in the onshore market and short in the NDF market to profit from the spread.
“Now, those with long dollar positions onshore will have to sell, and this will also be unwound in the NDF market,” the banker said, adding that this could lead to price distortions on Monday and some losses as trades are unwound midway.
Traders said the unwinding is likely to be finite, after which fresh positions will be initiated within the $100 million limit, limiting the durability of any near-term appreciation. If oil prices remain in the $100–115 per barrel range, the rupee could resume its depreciation trend.
“If cutting down of positions happens on Monday, the currency can appreciate to 93.50/$1 to 94/$,” said Kunal Sodhani, head of treasury at Shinhan Bank India. “But after banks square off their positions, we are on our way to 96-97/$. These days, a 1% deprecation has become routine.”
Even in the best-case scenario, which is the war ending and oil prices normalising, RBI may cap rupee appreciation at 92–92.50 and build up its lost reserves, he said.
Traders said the rupee could rise to the 93.50-94.50 per dollar range, implying gains of 70-100 paise from current levels. The rupee closed at an all-time low of 94.81 per dollar on Friday.
“I expect there to be volatility and heavy dollar sales on Monday, which leaves room for the rupee to appreciate by 70-100 paise,” said Anshul Chandak, head of treasury at RBL Bank. “But the gain can be temporary and momentum can also be lost once these positions get neutralised.”
Traders warned that if the conflict in West Asia persists and crude oil prices remain elevated, the focus could quickly shift back to the 96-97 per dollar range in April, as the next zone of pressure.
The directive comes as the rupee has tumbled through key psychological levels in quick succession, pressured by surging crude oil prices amid concerns that the war in the Gulf may not end soon.
The currency has depreciated about 10% this fiscal year and roughly 3.5% since the conflict began. It was trading at 85.57 a dollar on April 1, 2025, and had weakened to 90.98 by February 27, a day before the conflict started.
Most large and mid-sized banks with net open positions exceeding $100 million are expected to sell dollars to comply with the RBI directive, traders said.
While such unwinding is likely to support the rupee, it could also result in mark-to-market losses for banks.
ET was first to report on March 29 that banks had lobbied the central bank on Saturday to apply the rule only to incremental positions after April 10, as aggregate net open positions are estimated at around $40 billion.
Traders said that if the gap between rupee-dollar rates in the offshore non-deliverable forwards (NDF) market and the onshore one widens to Re 1, banks could face losses of up to ₹4,000 crore. These losses could be reflected in banks’ books for the current fiscal year, as they had earlier calculated open positions after netting off hedged trades in the NDF market.
“The Middle East situation is now in uncharted territory. That leads to unconventional policy actions. A move on sharp reduction of Indian banks’ open FX positions in a short period seems to be in that category,” Uday Kotak, founder and director at Kotak Mahindra Bank, said on social media.
“Reminds me of Bimal Jalan play book as RBI governor in 1998 when the rupee was depreciating sharply post Asian crisis. If things get worse geopolitically, is there an opportunity for a new version of FCNR( B) scheme?”
The treasury head of a large private-sector bank said many positions had been built around arbitrage trades, with dealers going long on the dollar in the onshore market and short in the NDF market to profit from the spread.
“Now, those with long dollar positions onshore will have to sell, and this will also be unwound in the NDF market,” the banker said, adding that this could lead to price distortions on Monday and some losses as trades are unwound midway.
Traders said the unwinding is likely to be finite, after which fresh positions will be initiated within the $100 million limit, limiting the durability of any near-term appreciation. If oil prices remain in the $100–115 per barrel range, the rupee could resume its depreciation trend.
“If cutting down of positions happens on Monday, the currency can appreciate to 93.50/$1 to 94/$,” said Kunal Sodhani, head of treasury at Shinhan Bank India. “But after banks square off their positions, we are on our way to 96-97/$. These days, a 1% deprecation has become routine.”
Even in the best-case scenario, which is the war ending and oil prices normalising, RBI may cap rupee appreciation at 92–92.50 and build up its lost reserves, he said.
(This story has not been edited by economictimes.com and is auto–generated from a syndicated feed we subscribe to.)
