Rupee opens 10 paise higher at 93 against US dollar amid RBI curbs

The Indian rupee began the week on a positive note on Monday, April 6, buoyed by the carryover impact of the central bank's recent measures, although ongoing demand for oil and selling by foreign investors might dampen the overall mood.

The rupee started off at 93 against the US dollar, following its close at 93.10 on Thursday, according to traders. Indian financial markets were closed on Friday on account of Good Friday.

The Indian rupee surged by 1.8% last week, marking its strongest performance in more than four years, following the Reserve Bank of India's implementation of position limits on banks and corporations, which restricted onshore-NDF arbitrage activities.

The RBI has enforced stricter regulations to limit speculative activities by setting a ceiling of $100 million on banks' net open positions, imposing limitations on non-deliverable forwards (NDFs), and prohibiting the rebooking of contracts that have been cancelled.

This prompted a reduction of bank positions, resulting in the selling of dollars in the onshore market. Banks are required to reduce their positions to the levels set by the RBI by April 10.

As per experts, this wasn't solely about tightening policies; it compelled the market to respond. Financial institutions and traders with long dollar positions quickly moved to reverse them. Consequently, a significant amount of dollar selling inundated the market, causing the rupee to soar rapidly in a brief period.

Additionally, market analysts indicated that the Clearing Corporation of India Ltd (CCIL) intervened to promote stability by raising volatility margins from 20% to 25% in foreign exchange transactions.

This adjustment implies that participants are now required to allocate more capital to their positions. It serves as a protective buffer, ensuring that the system stays stable even when market fluctuations are sharp. However, it also increases the cost of trading, which may help curb excessive risk-taking, according to experts.

Despite domestic elements being favorable for the rupee, global events continue to pose a risk, as indicated by market experts.

US President Donald Trump has heightened tensions with Iran, issuing a deadline until Tuesday for the reopening of the Strait of Hormuz and warning that a failure to comply could result in attacks on Iran's power infrastructure. In a strong statement on social media this past Sunday, he remarked that Iran would face “living in Hell” if the Strait remains closed.

As a consequence, oil prices have surged, with Brent crude nearing $110 per barrel.

This is where the concern arises. Since India is a significant oil importer, the increase in crude prices directly raises the country’s import expenses, which naturally exerts pressure on the rupee over time, according to experts.

Rupee Outlook

According to Amit Pabari, MD,Research Team, CR Forex Advisors, Looking ahead, the near-term direction of the rupee will depend on how these opposing forces play out.

On one side, RBI’s actions are clearly working. As banks continue to unwind dollar positions ahead of the April 10 deadline, the rupee may strengthen further toward the 91.50–92.00 range.

But on the other side, global risks cannot be ignored. If geopolitical tensions continue and oil prices remain elevated, India’s macro balances trade deficit, current account deficit, and fiscal position could come under pressure again.

“In that scenario, the rupee may find it difficult to sustain gains and could move back toward the 94.00 levels after stabilizing at lower levels. But the bigger picture remains clear volatility is here to stay,” said Pabari.

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