Mumbai (TIP): The rupee staged a sharp recovery on Thursday after the Reserve Bank of India (RBI) rolled out a fresh set of forex restrictions aimed at curbing speculation, but market participants believe that the relief may be temporary amid persistent external pressures.
After a volatile session on Monday, the rupee opened sharply higher at 93.25 against the US dollar on Thursday. The local unit touched a high of 92.82, before closing at 93.1050, the highest percentage gain in a single day since September 2013.
On Friday, April 2, the rupee had hit an all-time low of 94.8325.
The appreciation of nearly 2% on Wednesday followed the central bank’s 1 April announcement of a second set of measures to curb speculation. RBI targeted the rebooking of cancelled forex derivative contracts and tightened norms around related-party transactions.
If a company or trader cancels a dollar hedge, they can no longer re-enter the same trade to benefit from price movements, limiting their ability to take directional bets under the guise of hedging. Banks have also been barred from foreign exchange derivative contracts with related parties, as defined under the Indian Accounting Standard (Ind AS) 2. On 27 March, the RBI first capped banks’ net open positions (NOP) in the domestic market at $100 million at the end of each business day.
The forex derivative market is dominated by larger banks with gross onshore positions of $30-40 billion that offset each other, a 29 March Jefferies report said.
Market participants said RBI’s measures triggered a covering of short rupee positions, leading to the spike. “Rupee is currently in uncharted territory. A lot of the movement now is dependent on regulatory moves. We expect the rupee to trade in a range of 92.50-93.50 until the 10 April deadline,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank. “Further cues will come from the RBI’s policy next week as well.”
According to a report by MUFG Global Markets Research team, while the measures may support the rupee in the near term, they could also widen spreads between both markets and reduce liquidity over time.
Mecklai Financial Services said that 92.50-93.00 levels are likely to be tested, and this could be the ideal zone for importers to cover their payment liability over the next couple of months, especially since the rupee will remain under pressure. It expects the local unit to trade in a broader range of 91.20–96.00.
The MUFG report said the fundamental flow picture for INR still points towards FX weakness moving forward. “As such once the dust on these regulations settle, we think it is still a good chance for clients to buy USD/INR if lower levels in the markets allow moving forward.”
Wednesday’s move in the rupee was largely driven by improved risk sentiment following US President Donald Trump’s speech, which hinted at negotiations rather than escalation in the ongoing US-Israel war against Iran, triggering a relief rally.
However, uncertainty remains elevated, keeping volatility high in currency markets.
Selling by foreign portfolio investors and elevated crude oil prices continue to weigh on the rupee, as high energy prices raise import bill and dollar demand. The rupee has fallen by 4.5% since the war began and 11% in FY26 due to continuous selling by FPIs.
Mkts pare early losses to close higher on strong value buying
Staging a spirited recovery, stock markets pared early losses to close higher on Thursday, with the benchmark Sensex rising by 185 points and the broader Nifty settling above 22,700 on strong value buying in IT and banking shares and a sharp rebound in the rupee.
Rebounding more than 2,000 points from the day’s low, the 30-share BSE Sensex finally settled higher by 185.23 points, or 0.25%, at 73,319.55.
The index opened lower and tanked further by 1,588 points to hit a day’s low of 71,545.81 in the first half of the session. Strong value buying in IT bellwethers like HCL Tech and TCS, and banking giants HDFC Bank and ICICI Bank, helped the barometer recover from sharp losses, hitting a high of 73,568.54 in the pre-close session.
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