Rupee Falls Below 95 Against Dollar Despite RBI’s Efforts to Stabilize
The Indian rupee has hit a significant milestone, breaching the 95 mark against the US dollar for the first time, marking a record depreciation of 9.88% in the current financial year—the steepest decline in 14 years. Despite a brief recovery earlier in the day, the currency closed at 94.78, reflecting ongoing pressures from rising global crude oil prices and geopolitical tensions, particularly the US-Iran conflict. Market analysts are closely monitoring the situation as the Reserve Bank of India (RBI) implements measures to stabilize the currency.
RBI Moves To Protect Rupee
In response to the rupee’s decline, the Reserve Bank of India has taken decisive action by capping the overnight net open position that banks can maintain to $100 million. This directive, issued in a circular on March 27, 2026, requires compliance by April 10. As banks adjust their positions, they are expected to sell dollars in the market, which could provide temporary support for the rupee. Amit Pabari, Managing Director of CR Forex Advisors, noted that while this adjustment may offer short-term relief, it does not signify a fundamental shift in the currency’s trajectory.
The RBI’s decision aims to curb the rupee’s slide towards the 95 level, but it may also lead to losses for banks that hold large open positions. Many banks had previously maintained net open positions of up to 25% of their net worth, with some institutions exceeding $1 billion in dollar exposures. The new cap necessitates a rapid reduction in these positions, compelling banks to offload dollars and purchase rupees to rebalance their portfolios. Uday Kotak described this move as an “unconventional policy action,” reminiscent of strategies employed during past economic crises.
Why Rupee Declined Despite RBI Move
Although the RBI’s intervention initially led to a sharp appreciation of the rupee, these gains were short-lived. Market participants observed that strong demand for the US dollar from oil companies quickly weighed down the currency. The USD/INR pair experienced significant volatility, fluctuating within a range of 165 paise during intra-day trading, as the ongoing conflict in West Asia continued to disrupt energy markets.
Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, explained that the rupee’s rise was countered by substantial corporate buying and position squaring in the non-deliverable forward (NDF) market. Analysts predict that the rupee will likely trade within a broad range of 92 to 97 against the dollar in the near term. Sunal Sodhani, head of treasury at Shinhan Bank, emphasized that the outlook for the currency will depend on three key factors: oil prices, capital flows, and global interest rates.
Factors Influencing the Rupee’s Performance
The Indian rupee remains under pressure due to persistent outflows from foreign investors and a strengthening US dollar, exacerbated by the uncertainty surrounding the West Asia conflict. Traders have noted that the sustained demand for dollars, coupled with inflation risks from high energy prices, continues to exert downward pressure on the rupee. The overall trend is expected to remain weak unless there is a significant correction in crude oil prices.
Previous initiatives aimed at attracting foreign currency relied on offering assured returns to non-resident Indians, who could borrow at lower rates abroad and invest in India. However, such strategies may have limited appeal in the current environment, given the availability of structured investment options. Bankers suggest that utilizing rupee-dollar swap mechanisms could be a more cost-effective approach for the RBI in raising dollars amidst these challenging conditions.
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