The Reserve Bank of India (RBI) has barred authorised dealers from offering non-deliverable INR derivative contracts to residents and non-residents. It has also stopped authorised dealers from transacting FX derivatives with related parties.
Banks may still offer deliverable forwards for hedging, but cannot offset these trades through an offshore position. The measures are intended to reduce speculative pressure on the Rupee (INR).
The offshore 1-month USD/INR non-deliverable forward (NDF) fell 0.6% to 93.59 after the directive. This drop reduced near-term need for market intervention.
The onshore FX market was closed on Tuesday and Wednesday. The offshore 1-month USD/INR NDF was stable at market open, then fell overnight following the RBI announcement.
Importer demand for US dollars is expected to remain firm amid elevated global commodity prices. The RBI drew USD30bn from FX reserves in the first three weeks of March to support the INR.
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We must remember the Reserve Bank of India’s move last year, in 2025, to ban authorised dealers from offering non-deliverable INR derivative contracts. This action was a direct attempt to reduce speculative pressure on the Rupee. The rules also stopped dealers from transacting FX derivatives with related parties.
Immediately following that directive, we saw the offshore 1-month USD/INR NDF fall significantly, briefly easing the need for central bank intervention. This showed the ban worked in the short term to disrupt the offshore speculative market. It created a temporary calm as the market adjusted to the new landscape.
However, that stability did not last through late 2025, as strong dollar demand from importers continued. Elevated global commodity prices, particularly for oil, kept the pressure on the currency. The significant drawdown of USD30 billion from FX reserves during that period highlighted the underlying weakness.
Looking at today’s situation, the Rupee remains under pressure, with the USD/INR exchange rate currently trading near 85.50. India’s most recent trade deficit figures for February 2026 widened to $21 billion, fueled by firm Brent crude prices that have stayed above $90 per barrel. This confirms that fundamental pressures persist despite the trading restrictions.
For the coming weeks, we should focus on the onshore market and permitted instruments. Hedging strategies using deliverable forwards are still viable and will likely see increased volume. Traders should anticipate continued, albeit managed, depreciation of the Rupee and position accordingly.
The key is to watch the RBI’s actions and communication very closely for any signs of further intervention, as forex reserves have recovered to a healthy $650 billion. We should also monitor upcoming inflation data, as the latest print for March 2026 came in at 5.2%, which may limit the central bank’s policy options. Any sharp move in commodity markets will be a primary driver for the Rupee’s direction.
