Rupee curbs due to excessive speculation, not a structural shift: RBI Guv

The Reserve Bank of India on Wednesday said "excessive speculation" on the rupee prompted surprise actions on the currency front in the last fortnight, but clarified that its measures will not remain forever.

"In the last few weeks of March, we have witnessed heightened volatility in the foreign exchange market. These measures are reactions to the specific market movements. They are not signalling any structural changes. These are not measures going to remain forever," Malhotra said in a post-policy press conference.

Deputy Governor T Rabi Sankar said there was an "artificial drying up" of supply in the market during those days, which led to the measures.

The comments from the apex bank came for the first time after it capped NOP (net open positions)-rupee positions in the onshore deliverable market at $ 100 million and barred authorised dealers from offering non-deliverable forwards.

The first measure helped the local currency to appreciate sharply, but gains were reversed within a few hours of trading. The second measure, stopping authorised dealers from offering NDF, helped the rupee significantly, and it appreciated over 2 per cent in a single day.

In March, the rupee saw higher depreciation pressures with the currency breaching 95 per US dollar intraday, surpassing its previous record lows amid concerns over the West Asia conflict.

The rupee posted its biggest annual decline in 14 years in FY26, depreciating by 9.88 per cent against the US dollar, marking the sharpest fall since FY12 when the currency weakened by 12.4 per cent.

The governor said the central bank observed positions being built up, leading to arbitrage positions in the non-deliverable forward (NDF) and forwards market.

"In normal times, these linkages are important for efficient price discovery, and it was our endeavour to widen and deepen this market. But, when there is excessive volatility and excessive building up of positions, which perhaps is not helping efficient price discovery, such kinds of measures are taken," Malhotra added.

Sankar said that these measures have to be seen in the context of these events (excessive volatility), which was leading to more volatility.

"More importantly, these were leading to artificial drying up of supply in the market, affecting the prices in the market. Our objective of doing this was to cool off that phase down, so that long-term commitments still remain to rupee internationalisation, to having one global market.