The rupee swung sharply on Monday, briefly breaching the 95-per-dollar mark to touch an intra-day low of 95.24 per dollar, as corporates took advantage of the arbitrage between onshore and offshore markets, with importers’ demand for dollars eroding early gains.
The currency had opened stronger and rallied over 1 per cent to around 93.53 per dollar after the Reserve Bank of India on Friday capped banks’ open onshore dollar-rupee positions to stem depreciation pressures on the Indian unit.
While the cap triggered heavy dollar selling during early trades, it proved short-lived amid pressures from elevated oil prices, capital outflows, and a firm dollar, dealers said.
The rupee eventually settled at 94.81 per dollar on the last trading day of 2025–26, flat against Friday’s close. FY26 marked the worst year for the rupee since FY12, with a 9.85 per cent depreciation. The rupee was the worst-performing among Asian currencies in FY26.
The rupee fell 4.04 per cent in March 2026, which was the worst month for the currency since 2020 (Covid period), when it fell 4.6 per cent.
The RBI’s decision to cap banks’ onshore positions — with compliance by April 10 — comes at a time when dollar-long bets had built up significantly. By forcing banks to reduce these exposures, the central bank aimed to engineer a near-term supply of dollars in the onshore market. Banks have requested the central bank to relax the rules as they face mark-to-market losses.
Market participants said the RBI’s move to cap banks’ net open positions at $100 million forced an unwinding of trades built around the price gap between the spot and non-deliverable forward (NDF) markets. Banks sold dollars in the spot market while buying in the forward segment, driving a sharp appreciation in early trade and widening the spread between one-year NDF and onshore forward rates to nearly one rupee. The one-year dollar/rupee forward premium rose to around 2.92 per cent, up from roughly 2 per cent last week, reflecting aggressive demand for forward cover as banks rushed to unwind positions.
“The large gap at open was due to banks’ rush to square off their positions,” said the treasury head at a private bank. “The underlying pressure due to FPI outflow from both debt and equities is there. Additionally, importer dollar demand and arbitrage trade by corporates was the reason for the fall past 95 per dollar. The RBI was there with nationalised banks and we settled flat,” the person added.
Government bond yields also surged past 7 per cent to settle at 7.04 per cent on Monday — the highest since July 2024 — against the previous close of 6.94 per cent due to selling by foreign banks and a rise in overnight indexed swap (OIS) rates, said dealers.
“The risk-off sentiment in the offshore market is strong, which led to heavy paying in the OIS market,” said a dealer at a primary dealership. “Foreign banks were on the selling side after we opened with a gap,” he added.
The one-year OIS rate settled at 6.24 per cent against the previous close of 6.04 per cent, whereas the five-year OIS rate settled at 6.80 per cent, against the previous close of 6.63 per cent.
