The Reserve Bank of India (RBI) has banned authorised dealers from offering non-deliverable INR derivative contracts to residents and non-residents. It has also barred authorised dealers from transacting FX derivatives with related parties.
Banks may still offer deliverable forwards for hedging, but they must not offset these trades using offshore positions. The measures are intended to reduce speculative pressure on the rupee (INR).
Impact On Trading Strategy
The onshore FX market was closed on Tuesday and Wednesday. In offshore trading, the 1-month USD/INR non-deliverable forward (NDF) fell 0.6% to 93.59 after the directive, following a sharp overnight drop.
The RBI has drawn USD30bn from FX reserves in the first three weeks of March to defend the INR. Importer demand for dollars is expected to stay firm, linked to elevated global commodity prices.
After the NDF move, near-term pressure for RBI intervention may ease. The article notes the rules may have limited effect on the rupee’s medium-term trend.
The Reserve Bank of India’s move to ban non-deliverable derivative contracts fundamentally changes our trading landscape. This action effectively pushes speculative activity out of the offshore NDF market, forcing a shift in strategy. For us, this means focusing more on the onshore deliverable forward market for any new INR positions.
Near Term Market Implications
We saw the offshore 1-month USD/INR NDF drop immediately following the directive, which suggests a short-term squeeze on speculators. Given the recent volatility in March 2026 where the Rupee tested the 94.50 level against the dollar, we should be cautious about establishing new short INR positions. The RBI’s action has likely created a temporary floor for the currency by reducing speculative pressure.
However, the underlying economic pressures on the Rupee have not disappeared. With Brent crude futures consistently trading above $95 a barrel this quarter and India’s trade deficit widening to over $20 billion in February 2026, importer demand for dollars will remain strong. This situation is reminiscent of what we saw in March of 2025, when the RBI depleted its reserves by $30 billion to defend the currency.
We anticipate a decrease in short-term volatility as speculative flows are curtailed by the new regulations. This could present an opportunity to build medium-term positions through other instruments, such as options, where premiums may become more attractive. The core driver for the Rupee’s direction in the coming weeks will now be fundamental data rather than offshore sentiment.
