The rupee rallied sharply on Thursday, logging its biggest single-day gain in over 12 years, after the central bank unleashed measures to clamp down on speculative activities in the past week after direct intervention in the foreign exchange market failed to halt the local currency’s sharp fall.
The local currency remained highly volatile today, moving between 92.83 per dollar and 93.66 per dollar during the day, as importers, exporters and banks actively hedged their positions.
The domestic unit strengthened to an intraday high of 92.83 per dollar, staging a strong recovery from its intraday record low of 95.21 in the previous session after the foreign exchange market resumed on Thursday after a two-day break.
It eventually settled at 93.10 per dollar, up 1.8 per cent against the previous close — its best gain since September 2013 (2.61 per cent).
In the current calendar year, the rupee has depreciated by 3.48 per cent against the greenback, pressured by concerns over spillovers from the Iran conflict.
After capping banks’ onshore currency positions at $100 million last Friday — with compliance by 10 April — the central bank on Wednesday prohibited banks from offering some non-deliverable contracts involving the rupee to resident or non-resident users, with immediate effect.
Banks can still offer deliverable FX contracts for hedging, but users cannot offset those trades with positions taken offshore. Citing Bank for International Settlements data, news agency Bloomberg reported that average daily offshore trading in the rupee across Singapore, the UK, the US and Hong Kong was about $149 billion in 2025, more than double the $72 billion traded onshore.
Market participants said that banks quickly reduced their long positions on Thursday in the non-deliverable forward (NDF) market, while buying dollars in the onshore market.
This shifted genuine hedging demand back onshore, driving up the cost of locking in dollars through forward contracts and mechanically pushing up forward premiums. The one-month forward premium rose to 5.4 per cent from 3.73 per cent, while premiums for contracts up to four months increased by over 1 percentage point to around 4.25 per cent.
“With constraints like NOP limits and reduced flexibility in managing positions, banks are no longer able to freely intermediate flows or run large proprietary books,” said Kunal Sodhani, head of treasury, Shinhan Bank. “This has pushed genuine hedging demand back onshore, increasing the cost of locking in dollars via forwards and mechanically lifting forward premiums,” he added.
“When the rupee strengthens, importers see it as an opportunity to lock in cheaper dollars for future payments. This creates heavy one-sided demand for forward USD, pushing premiums higher,” said Amit Pabari, MD, CR Forex.
According to bankers, the central bank is unlikely to extend the 10 April deadline as speculation was the key driver behind the rupee’s sharp depreciation since the start of the West Asia conflict last February. In March, the local currency fell over 4 per cent against the dollar to become the worst-performing Asian currency.
“The RBI seemed hell-bent on controlling the fall in rupee as it took two major actions in the past five days after rupee reached 94.85 per dollar levels last Friday. It brought down the NOP of banks to $100 million and did not allow banks to transfer their positions to corporates, which banks did on Monday,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.
“With the holiday tomorrow, the rupee is now going to open on Monday within a range of 92.50 to 93.50 as banks square up their overall positions in the NDF and OTC market,” he added.
