The sharp slide in the rupee has kept currency markets on tenterhooks. The Reserve Bank of India has taken measures to stem this downward spiral and reduce volatility. Can it arrest the almost vertical 4% slide in the rupee?
What has RBI done to arrest rupee’s slide?
The RBI has now directed banks to limit their net open positions on the Rupee in the foreign exchange market to $100 million at the end of each business day.
Authorized dealers are required to comply with the same norms by April 10. Existing rules allow the boards of directors of authorized dealers to set net open position limits, provided they do not exceed 25 per cent of the firm’s total capital.
However, the Reserve Bank of India retains the authority to impose hard caps to manage exchange rate volatility.
“It has now been decided that Authorised Dealers shall ensure that their NOP-INR positions in the onshore deliverable market shall be maintained within US$ 100 million at the end of each business day. Authorised Dealers shall ensure compliance with the above at the earliest but no later than April 10, 2026,” the central bank stated in a notification on Friday.
What prompted the move?
The Reserve Bank order comes at a time when the rupee has been on a downward spiral, hitting a string of record lows as worries over the spillovers from the Iran war sent the currency down 4 per cent against the dollar.
Rupee closed at a historic low of 94.85 against the US dollar on Friday. Forex traders said the Rupee is succumbing to pressure from continued foreign investor sales and a stronger greenback amid uncertainties over the West Asia conflict.
The foreign investors have sold Indian stocks and bonds at a record monthly pace, adding to the strain on the Rupee. Foreign institutional investors sold equities worth Rs 4,367.30 crore on a net basis on Friday,
What are dealers saying?
Dealers said that the RBI intervened in the forex market by selling dollars to provide liquidity. However, the action was not aggressive, allowing the Rupee to weaken further.
“The rupee has been depreciating faster than other currencies. The strengthening dollar, which is pressuring the Rupee and other currencies to weaken. The pace has been higher primarily because of the FPI outflows and worry over a higher import bill from elevated oil prices,” said Madan Sabnavis, chief economist at Bank of Baroda.
