The RBI has ‘effectively broken’ the direct link between the onshore and offshore markets, says Neeraj Gambhir
Published Mon, Apr 6, 2026 · 05:51 PM
[MUMBAI] The Reserve Bank of India’s (RBI) tightening of foreign exchange (FX) rules will help shield the rupee from pressures emanating from offshore markets, but traders may continue drawing pricing signals from those markets, a senior Axis Bank official said.
A 4.5 per cent fall in the Indian rupee since the breakout of the Iran war has prompted the central bank to impose a cap on banks’ net open FX positions in the onshore markets in late March.
The RBI also barred lenders from offering non-deliverable forward (NDF) contracts to clients, and stopped firms from rebooking cancelled FX contracts in order to curb speculation.
The rupee gained 2 per cent on Apr 2 and traded 0.3 per cent higher at 92.81 per US dollar on Monday.
Neeraj Gambhir, executive director for treasury, markets and wholesale banking products at Axis Bank, said: “RBI has effectively broken the direct link between the onshore market and the offshore markets.
“If there is a lot of speculative activity in the offshore market against the Indian rupee, it will no longer translate into the onshore (US) dollar demand and will not deplete RBI’s FX reserves.”
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The RBI first opened the NDF market to Indian banks in June 2020, and to resident Indians in June 2023 to deepen participation. The central bank opened up local access to the market despite reservations among a committee headed by a former deputy governor.
Since opening the NDF market to local participants, RBI has placed both informal and formal restrictions on accessibility.
“If we recall the FX market before the integration of offshore and onshore, the onshore pricing used to be heavily influenced by offshore,” Gambhir said.
He reckoned that if the RBI’s measures do not end up delivering the desired outcomes, the central bank may turn to direct measures for shoring up dollar supply or curtailing some dollar demand.
In the past, the central bank used dedicated dollar-buying windows for oil companies and facilities to mobilise foreign currency deposits from non-resident Indians, when the rupee came under sustained pressure.
The rupee’s recent weak run against the greenback does not pose a financial stability risk, said Gambhir.
“The level of depreciation is not in any way out of sync with what is happening in the rest of the world, particularly when you compare against other Asian and emerging markets, which are also large importers of crude oil.”
Rates on hold?
India’s central bank is slated to announce its monetary policy decision on Wednesday. All but two out of 71 economists polled by Reuters expect the RBI to hold rates.
Gambhir shared that view, adding that the central bank should ensure surplus liquidity in the banking system.
The central bank is also due to present its first forecasts for growth and inflation for FY2027, which will likely account for spillover effects from the war in the Middle East. REUTERS
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