- Dollar-rupee forward premiums jump to multi-year highs
- Crowded positions, thin liquidity fuel feedback loop
- Onshore premiums diverge sharply from NDF points
- Forward market volatility in contrast to steady spot INR
Indian rupee forward premiums rose to multi-year highs on Thursday after the central bank’s latest foreign exchange curbs rattled markets, sapping liquidity and making it difficult for traders to manage exposures, several bankers said.
The turmoil has strained a key segment of India’s currency market, where companies hedge exchange-rate risks and banks manage balance-sheet exposures.
The one-year implied hedging cost has jumped more than 90 basis points this week to 4.6 per cent, its highest since January 2022 and well above the roughly 2 per cent implied by the India-US interest-rate differential.
While supply-demand imbalances and rupee expectations can push hedging costs away from fair value, the scale of the divergence points to severe market dislocation, the bankers said, speaking on the condition of anonymity since they are not authorised to speak to the media.
The Reserve Bank of India did not immediately respond to an email seeking comment.
“Nobody is quoting swaps properly,” a senior trader at a Mumbai bank said, pointing to how the bid-ask spread on the 1-year forward premium had widened significantly.
The moves were sharper in shorter tenors, with the three-month implied hedging cost at 7.2 per cent, against a theoretical 1.5 per cent.
The strain extended to overnight swaps, used by banks to manage daily rupee and dollar funding. One-day swap costs rose to around 2 paise, more than four times usual levels, partly driven by the RBI’s sell/buy swaps.
The disruption widened the spread between onshore and the non-deliverable forward rupee rates.
NDF points usually trade at par with or at a modest premium to onshore rates, but a surge in onshore premiums this week, alongside central bank intervention in the NDF market, has pushed them to a discount.
The one-month deliverable dollar/rupee forward premium was last quoted at around 60 paise, compared with 50 paise offshore.
“In NDF, intervention is keeping the points lower, while onshore there is just no one to stop it, so levels are completely out of whack,” a trader at a Singapore-based bank said.
The dislocation in the forward market contrasts with relative stability in spot trading, where RBI dollar sales have helped keep the rupee around the ₹95-per-dollar mark.
Painful exits from crowned bets
The rupee forward market has been under strain since the start of the week, when the RBI unveiled measures to support the currency, including cash margin requirements on forward dollar purchases by companies hedging current-account transactions and by banks managing their asset and liability exposures.
Disruptions in the forward market have intensified on banks rushing to unwind trades that had wagered on rupee forward premiums falling, bankers said.
However, with few counterparties willing to take the other side of those trades, banks are finding it difficult to exit, one trader said.
The resulting imbalance is fuelling the surge in premiums, forcing traders to cut loss-making positions.
An unchecked rise in forward premiums could further raise hedging costs for companies with dollar liabilities, while amplifying mark-to-market losses for traders holding received positions and prompting further position-cutting, the bankers said.
Published on October 15, 2026
