India clamps down on rupee bets as RBI caps bank exposure

India's central bank has announced forceful new rules aimed at curbing speculative bets against the rupee, capping banks' open positions at $100 million at the end of each trading day. The move marks a shift away from direct market intervention toward tighter control of market positioning, as authorities try to stabilise a currency under pressure.

The rupee has slid to successive record lows, exacerbated by the Iran war, and the disruption has drained foreign-exchange reserves. In response, the RBI is implementing a framework designed to limit large one-sided bets and force lenders to unwind dollar positions, aiming for near-term stability while accepting that longer-term fundamentals may remain challenging.

Lenders have signalled concerns about the rapid unwind and potential losses, with some urging that the new rule apply only to new bets. They also point to implementation complexities, including data handling and confidentiality considerations across jurisdictions, which could slow compliance.

The rupee's weakness has seen it lose over 4% in a short period, making it Asia's worst performer this year. Global fund withdrawals from Indian assets have already exceeded billions of dollars as investors reassess risk amid the conflict and rising inflation, adding to the pressure on policymakers to shore up sentiment.

In this context, the RBI's strategy appears to be a deliberate pivot from broad intervention to targeted control of market exposure. While officials hope the policy will curb excessive speculation and provide temporary relief, analysts caution that it may have limited influence on the currency’s longer-term trajectory if underlying drivers remain unresolved.

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