The Reserve Bank of India’s tightening of foreign exchange 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% fall in the Indian rupee since the breakout of the
Iran war 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 contracts to clients and stopped firms from re-booking
canceled FX contracts in order to curb speculation.
The rupee gained 2% last Thursday and traded 0.3% higher at
92.81 per dollar on Monday.
“RBI has effectively broken the direct link between the
onshore market and the offshore market,” said Neeraj Gambhir,
executive director for treasury, markets and wholesale banking
products at Axis Bank, on Thursday.
“If there is a lot of speculative activity in the offshore
market against the INR, it will no longer translate into the
onshore dollar demand and will not deplete RBI’s FX reserves.”
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 bankopened 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, the
central bank 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.
Gambhir reckons that if the RBI’s measures don’t end up
delivering the desired outcomes, the central bank mayturn to
direct measures for shoring up dollar supply or curtailing some
dollar demand.
In the past, the central bank has used dedicated
dollar-buying windows for oil companies and facilities to
mobilize foreign currency deposits from non-resident Indians
when the rupee came under sustained pressure.
The rupee’s recent weak run against the dollar does not pose
a financial stability risk, according to 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 April 8. All but two out of 71 economists
polled by Reuters expect the RBI to hold rates.
Gambhir shares that view, addingthat 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 the 2026-27 financial year, that
will likely account forspillover impact from the war in the
Middle East.
Published on April 6, 2026
