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RBI curb on banks’ forex bets to give rupee temporary relief

Experts believe that beyond the immediate technical adjustments, the bigger driver remains intact — energy flows through the Strait of Hormuz

Dipak Mondal

The RBI’s decision to cap banks’ net open rupee positions at $100 million a day could give a temporary relief to bearish sentiments in rupee, but the Indian currency would continue to take medium and long-term directions from other factors such as energy flows through the Strait of Hormuz.

A forced adjustment to the Net Open Position (NOP) limits could trigger a sharp corrective move in favour of rupee as banks rush to rebalance positions, says Anindya Banerjee, head of commodity and currency research at Kotak Securities. However, he feels any upside is likely to be transient.

“We expect the RBI to lean against excessive volatility, potentially stepping in via forward dollar buying, especially given its existing short positioning,” he says.

Experts believe that beyond the immediate technical adjustments, the bigger driver remains intact — energy flows through the Strait of Hormuz. Until there is clear normalization on that front, elevated crude and gas prices will continue to exert structural pressure on the rupee, they say.

The Reserve Bank of India (RBI) on Friday directed authorised dealer (AD) banks to limit their net open position in the rupee (NOP-INR) in the onshore deliverable market to $100 million at the end of each business day, in a move aimed at managing exchange rate volatility. The directive requires banks to comply with the revised limits at the earliest, but no later than April 10, 2026.

The central bank said the decision has been taken under provisions that allow it to prescribe limits on open positions involving the rupee depending on prevailing market conditions. The cap is expected to curb excessive speculative positions and ensure orderly functioning of the foreign exchange market.

Indian currency has seen unprecedented volatility with rupee losing more than 5% in March alone and over 10% the current financial year. The domestic currency closed at 94.82 on Friday, down 86 paise from its previous close, weighed down by elevated oil prices and a stronger greenback amid the rising uncertainties over the Iran war.

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