The currency had rallied 1.8% last week—its sharpest weekly rise in over four years—after the Reserve Bank of India introduced position limits for banks and corporates.
The move aimed to curb arbitrage between the onshore and non-deliverable forward (NDF) markets, prompting banks to unwind positions and sell dollars in the domestic market.
Banks have been directed to align their exposures with the new limits by April 10. Market participants said several lenders have already reduced positions, though some are still in the process of complying.
“This should continue to lend support to the rupee through the week,” a currency trader at a bank said.
The central bank also tightened rules on speculative activity by corporates and restricted banks from offering NDF contracts to clients, signalling its intent to stabilise the currency.
However, external factors may limit further appreciation. Traders pointed to rising crude oil prices and persistent foreign fund outflows as key headwinds.
Oil prices advanced on Monday (April 6) amid concerns over potential supply disruptions linked to geopolitical tensions in West Asia, including risks around shipping routes. Higher oil prices typically weigh on the rupee by increasing India’s import bill.
At the same time, foreign investors continued to pull back from Indian equities, citing concerns over the economic impact of elevated energy costs. Data showed outflows of nearly $1 billion on Thursday (April 2), following withdrawals exceeding $12.5 billion in March.
Market participants said while near-term support from regulatory measures may persist, the broader outlook for the rupee remains sensitive to global cues, particularly oil price movements and capital flows.
–With agencies inputs
