Rupee slips past 95 per dollar; benchmark bond yield exceeds 7%

The rupee was volatile in Monday’s session, touching an intraday low of 95.24 per dollar as large corporations exploited arbitrage opportunities between onshore and offshore markets, while importer demand for the greenback reversed the currency’s initial advance. The benchmark 10-year government bond yield, too, breached 7 per cent for the first time since July 2024.

 

The currency had opened firmer and rallied more than 1 per cent to around 93.53 per dollar after the Reserve Bank of India (RBI) on Friday capped banks’ open onshore dollar-rupee positions in an effort to contain depreciation pressures on the Indian unit.

 

Although the measure prompted heavy dollar selling in early trade, the effect proved short-lived amid persistent headwinds from elevated oil prices, capital outflows and a stronger greenback, according to market dealers.

 

 

The rupee eventually settled at 94.81 per dollar on the final trading day of the 2025-26 financial year, little changed from Friday’s close. The year marked the currency’s worst performance since FY12, with a depreciation of 9.85 per cent, making it the weakest among Asian peers. In March this year, the rupee declined 4.04 per cent, its steepest monthly fall since 2020, when it dropped 4.6 per cent during the Covid period. 

 

The rupee, which breached 90 versus the dollar on December 3 last year, took less than 4 months to cross the 95 a dollar mark. The Indian unit had hit the 94 a dollar mark during the previous trading session. 

 

However, responding to a supplementary question in the Lok Sabha, Union Finance Minister Nirmala Sitharaman said India’s economic fundamentals remained strong and that, relative to other emerging markets, the rupee was “absolutely going fine (theek chal raha hai)” against the US dollar.

 

The RBI’s directive requiring compliance by April 10 comes at a time when dollar-long positions had built up significantly. By forcing banks to pare these exposures, the central bank aimed to generate near-term dollar supply in the onshore market. Banks, however, have sought regulatory relief, citing mark-to-market losses.

 

Market participants said the cap on banks’ net open positions at $100 million triggered an unwinding of trades structured around the gap between spot and non-deliverable forward (NDF) markets. Banks sold dollars in the spot market while simultaneously buying in the forward segment, driving an early appreciation 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 about 2.92 per cent, up from roughly 2 per cent a week earlier, reflecting strong demand for forward cover as banks moved to unwind positions.

 

“The large gap at open was due to banks rushing to square off positions,” said the treasury head at a private bank. “Underlying pressure from foreign portfolio investor outflows in both debt and equities remains. Importer dollar demand and corporate arbitrage trades pushed the rupee past 95 per dollar. The RBI was present through state-run banks and we eventually settled flat,” the person added.

 

Government bond yields also rose sharply, with the benchmark yield closing at 7.04 per cent, the highest level since July 2024, compared with 6.94 per cent at the previous close, driven by selling from foreign banks and an increase in overnight indexed swap (OIS) rates, dealers said. “The riskoff sentiment in offshore markets remains strong, leading to heavy paying in the OIS segment,” said a dealer at a primary dealership. “Foreign banks were sellers after the market opened with a gap.”

 

The one-year OIS rate settled at 6.24 per cent, up from 6.04 per cent previously, while the five-year OIS rate closed at 6.80 per cent, compared with 6.63 per cent at the prior close.