Rupee opens 130 paise higher after RBI curbs NDF trades, caps speculation

The Indian rupee opened 130 paise higher at 93.53 per dollar on April 2 after the RBI introduced fresh measures, including a ban on NDF trades, to curb forex speculation and stabilise the currency

Rupee opens higher after RBI order on NDF: The Indian rupee opened sharply higher on Thursday, April 2, gaining 130 paise against the US dollar. The domestic currency started the session at 93.53/$, compared with Monday’s close of 94.83/$.  The rupee, later, extended gains to touch 93.15 per US dollar, rising around 166 paise versus Monday's close. With this, the rupee is up ₹2.05 from its record low level of 95.21/$. 

The currency market was closed on Tuesday and Wednesday.

  The rebound in rupee comes amid decisive policy action by the Reserve Bank of India (RBI) aimed at curbing speculative pressures and restoring stability in the currency market.

 

  The latest trigger for the rupee’s recovery is the RBI’s move to prohibit banks from offering rupee non-deliverable forward (NDF) contracts to both resident and non-resident corporate clients. The move is being seen as an attempt to plug regulatory gaps that had allowed speculative positioning to migrate outside the traditional interbank framework. By restricting access to NDF markets, the central bank is effectively tightening oversight and limiting avenues for leveraged bets against the rupee.

  “The latest set of measures by the RBI marks a clear and coordinated shift towards tightening speculative activity and reasserting control over rupee dynamics through three critical levers,” said Kunal Sodhani, Head – Treasury, Shinhan Bank.

  Lately, the RBI has undertaken a series of measures to curb speculative activity in the forex market and stabilise rupee amid its record low run.

  First, the RBI capped banks’ Net Open Position (NOP) at $100 million. By doing this, the RBI significantly curtailed the ability of banks to run large proprietary USD positions, effectively limiting balance sheet-driven directional bets on the currency.

  Second, by prohibiting Authorised Dealers from offering non-deliverable derivative (NDF) contracts involving INR to both residents and non-residents, analysts say the central bank has taken a decisive step to weaken the linkage between offshore and onshore markets, thereby reducing arbitrage opportunities that often amplify volatility and distort price discovery.

  Third, the restriction on cancellation and rebooking of FX derivative contracts closes a long-standing loophole that allowed market participants to roll over or reprice positions under the guise of hedging, but in reality, often facilitated speculative positioning.

  “Taken together, these three measures form a cohesive framework aimed at flushing out excess US Dollar long positions and speculative structures that had built up across both bank books and client portfolios. In the near term, this is likely to trigger unwinding of such positions, reducing artificial demand for dollars and providing support to the rupee, potentially leading to appreciation bias or at least enhanced stability,” Sodhani said.

  That said, while analysts expect volatility may subside as offshore-driven influences weaken and market activity becomes more anchored in genuine trade and investment flows, this tighter regulatory environment may come at the cost of reduced liquidity and wider onshore-offshore spreads over the medium term, as arbitrage channels are effectively shut. 

  “The RBI has come out very strongly against any speculations in rupee and we have to wait and see how these measures will affect the market. While the rupee may gain initially, it may give up its gains later subject to what other measures RBI could take,” said a note by Finrex Advisory. 

Oil prices rise again

  Meanwhile, oil prices resumed their climb on Thursday after US President Donald Trump said the ​United States would continue to attack Iran, ​including energy and oil targets over the next few ‌weeks, while avoiding any specific timeline to end the war.

 

Brent crude futures rose $4.88, or 4.8 per cent, to $106.04 per barrel. US West Texas Intermediate crude futures were up $4.17, or 4.2 per cent, to $104.29 per barrel.

 

Oil prices rose after Trump said the US will intensify attacks against Iran in the coming weeks if ongoing talks fail.

 

"We are on track to complete all the objectives. We are going to hit them hard in the next two to three weeks and send back to stone age where they belong," Trump said on Wednesday. 

Following his speech, the US dollar index rose to 99.85 levels, after falling to 99.50 overnight, as Trump said that Iran will be reduced to stone age in 2-3 weeks' time.  This has caused a safe haven demand of dollar due to the rising geopolitical tensions, analysts said.

 

Levels to watch on rupee

Shinhan Bank believes the levels of 92.50/93.00 could be tested on USDINR, but it can act as good levels for importers to start building their hedging positions in staggered manner considering geopolitical tensions still prevail with oil prices still on the higher side. 

“Positionally, the broader range play expected to be 91.20-96.00 levels,” it said.

  Finrex Advisory, meanwhile, said exporters may wait for hedging while importers may buy the dips to hedge their near term imports.