RBI tightens rupee bets as intervention costs surge
RBI tightens rupee bets as intervention costs surge
India’s central bank imposes new limits on banks’ rupee bets to curb depreciation, signaling a shift from direct intervention as forex reserves dwindle.
The Reserve Bank of India unveiled a set of forceful rules to curb speculative bets against the rupee, placing a cap on banks' open positions at $100 million at the end of each trading day. The move marks a shift away from direct intervention in the spot and forward markets to more targeted measures aimed at controlling market positioning.
Officials say the aim is to stabilise the currency as it drifts to fresh lows amid the Iran conflict and a rapid drawdown in forex reserves. In the first three weeks of March, reserves declined by more than $30 billion, underscoring why the RBI is changing its toolkit to contain the cost of defending the rupee.
Analysts describe the plan as a clear signal of discomfort with rupee weakness and a bid for near-term stability, even if longer-term fundamentals remain largely unchanged. The regulation also requires lenders to unwind existing positions in an orderly fashion, which could weigh on banks’ balance sheets as they adapt to the new regime.
Lenders have sought to delay the deadline, warning that a rapid unwind may trigger sizable losses and urging that the rule apply only to new bets. The RBI’s decision alters how market participants manage risk and could force a faster unwind of dollar exposures, a development some see as prudent risk management while others worry about unintended market consequences.
The rupee has fallen more than 4% over the period, trading around 94.82 per dollar and earning the region the label of Asia’s worst performer this year. The RBI’s action aims to halt the rupee’s slide by curbing one-sided bets and moving away from heavy reliance on spot and forward interventions toward targeted controls on financial institutions.
