RBI Caps Forex Positions at $100 Million, Forcing Banks to Unwind Rupee Bets

The Reserve Bank of India has placed a limit on the banks' net open rupee position at $100 million in the onshore forex market. The banks have to comply with this directive by April 10, 2026, according to Bloomberg.

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The RBI issued this directive on March 28. The banks have been mandated to unwind huge currency positions.

Rupee Weakness Triggers Policy Action

The move comes as the rupee has weakened sharply, declining over 4% in March and touching record lows near 94.82 per U.S. dollar, according to Bloomberg data.

The currency pressure follows heightened global volatility linked to the West Asia conflict and rising crude oil prices.

Impact On Banks And Forex Markets

The banks are also expected to scale down the existing positions to the new limit. The outstanding positions are estimated at $30 billion. This was according to Bloomberg.

This has caused a rush to unwind the arbitrage trades. The trades affected are the offshore non-deliverable forwards and the onshore forward markets.

Following the announcement, dollar-rupee offshore forward premiums rose sharply, reflecting adjustments in market positioning before the start of domestic trading, according to Bloomberg.

Shift In RBI’s Intervention Strategy

The RBI has traditionally intervened in spot and forward markets to stabilise the currency. However, such interventions contributed to a decline of over $30 billion in foreign exchange reserves in the first three weeks of March, according to Bloomberg.

The new directive marks a shift toward directly regulating bank positions instead of relying solely on market intervention.

Offshore Market Influence

A significant portion of rupee trading takes place in offshore centres such as Singapore, London, and New York through derivatives like non-deliverable forwards, according to Bloomberg.

These instruments enable them to take positions without access to the domestic market, thus affecting price movements onshore.

Broader Market Context

Foreign investors have withdrawn over $11 billion from Indian equities in March, with bond markets also witnessing outflows of about $1.6 billion, Bloomberg reported.

The RBI proposed a move to impose stricter reporting requirements on overseas affiliates of banks.

The central bank’s measures aim to limit speculative positions in the currency market, with banks adjusting exposures ahead of the April 10 compliance deadline.