The Indian rupee on Monday breached the 95 mark for the first time versus the US dollar. In fact, in this financial year, the rupee has depreciated by a record 9.88 per cent, the steepest fall seen in 14 years. The currency closed at 94.78 against the dollar. Incidentally, today’s intraday low of 95 came after a smart recovery in morning trade, when the rupee appreciated 128 paise versus the dollar. The recovery came despite global crude oil prices rising. Usually, higher global crude oil prices increase import bill, which in turn raises demand for US dollars, hence putting downward pressure on the rupee. At the same time, higher oil prices fuel inflation, which in turn widens the current account deficit, further weakening the currency.The Indian rupee has been battered since the start of the US-Iran war, and continues to depreciate versus the US dollar driven by a multitude of factors. Market participants noted that the domestic currency opened on a stronger footing as banks, which typically hold long positions, are now expected to pare these exposures in line with the central bank’s directive.
RBI Moves To Protect Rupee
The Reserve Bank of India moved to limit the overnight net open position that banks can maintain to $100 million.Under a circular issued on March 27, 2026, the Reserve Bank capped the Net Open Position (NOP-INR) for banks at $100 million, with compliance mandated by April 10.“As banks begin adjusting their positions, they are likely to sell dollars in the market, which can temporarily support the rupee. This creates a phase of relief, driven by position unwinding, not by a major shift in fundamentals, but still meaningful in the near term,” CR Forex Advisors MD Amit Pabari said.The Reserve Bank of India’s decision to stabilise the rupee by directing banks to reduce their foreign exchange exposures beyond $100 million was expected to check the currency’s slide towards the 95 level.
The measure is also likely to result in losses for banks holding large open positions. Over the weekend, lenders approached the central bank seeking either relaxation of the rule or an extension of the timeline. However, with the RBI maintaining its stance, banks are now required to begin trimming their positions from Monday in order to comply with the April 10 deadline.Previously, banks were allowed to maintain net open positions of up to 25% of their net worth. In reality, several large institutions had built substantial long dollar exposures, in some cases exceeding $1 billion, anticipating further depreciation of the rupee. The revised cap now necessitates a swift reduction in these positions. By April 10, 2026, banks must scale down their exposures to $100 million, effectively forcing them to offload dollars and purchase rupees to rebalance their books.Uday Kotak described the step as “an unconventional policy action” prompted by a West Asia crisis that has moved into “uncharted territory”. “Reminds me of Bimal Jalan play book as RBI Governor in 1998 when the rupee was depreciating sharply post Asian crisis. If things get worse geo politically, is there an opportunity for a new version of FCNR (B) scheme?” he said.Some bankers, however, remain doubtful about the effectiveness of special measures aimed at attracting dollar inflows.
Why rupee declined despite RBI move
The central bank’s action initially triggered a sharp appreciation in the rupee during early trade on Monday. However, much of these gains were later erased as strong demand for the US dollar from oil companies weighed on the currency, according to market participants.Forex traders noted significant volatility in the USD/INR pair, which fluctuated within a wide range of 165 paise during intra-day trading, as the West Asia conflict entered its 31st day and continued to unsettle energy markets.“Rupee rose, but again fell due to some big corporate buying, squaring up of position in NDF, Nationalised banks buying and oil companies buying,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.Analysts indicated that the rupee is likely to move within a broad range of 92 to 97 against the US dollar in the near term.“Outlook depends on three variables: oil, flows, and global rates. The new normal is higher volatility plus gradual depreciation, not stability around a fixed band. In FY27, for the USD/INR pair, 92-97 remains the broader range play,” said Sunal Sodhani, head of treasury in India at South Korean lender Shinhan Bank.According to forex market participants, the domestic unit remains under pressure due to persistent outflows by foreign investors and the strengthening of the US dollar, driven by ongoing uncertainty linked to the West Asia conflict. Traders noted that sustained demand for the dollar, coupled with inflation risks stemming from elevated energy prices, continues to weigh heavily on the rupee. They added that the overall trend is likely to stay weak unless there is a meaningful correction in crude oil prices.Earlier initiatives to mobilise foreign currency relied on offering assured returns to non-resident Indians, who would borrow at lower rates overseas and invest in India. Such approaches may have limited appeal now, given the broader availability of structured investment options. Bankers noted that raising dollars through rupee-dollar swap mechanisms may prove more cost-effective for the RBI.
