The Reserve Bank of India (RBI) has partly reversed recent foreign exchange curbs introduced to limit one-way depreciation in the Indian rupee (INR). The adjustment restores some flexibility for related-party transactions and Non-Deliverable Forward (NDF) hedging.
Under an official circular issued on Monday, the RBI will allow related-party deals, including cancellation and rollover of existing contracts. It will also allow back-to-back hedging in the NDF market to offset risks from FX contracts.
Caps on nominal net open positions in the local deliverable market will remain. Restrictions on banks carrying out the full range of FX derivative transactions with related parties also stay in place.
Since the measures were introduced last month, the rupee has strengthened by nearly 2% against the dollar. It recovered from record lows of around 95 per USD last month.
Despite the rebound, the rupee remains weaker on a year-to-date basis than regional peers. Other measures used in 2013 remain available, including gold import curbs, concessions for debt flows, a special non-resident deposit facility, and policy tightening as a last-resort option.
We saw last year how the Reserve Bank of India (RBI) introduced and then partially eased FX curbs to manage the rupee’s sharp fall towards 95 per USD. This established a clear pattern of intervention, striking a balance between curbing speculation and allowing for genuine hedging. That playbook is highly relevant now as the rupee again shows signs of weakness.
The rupee has depreciated past the 97.50 mark against the dollar, driven by a widening current account deficit which reached 2.8% of GDP in the last quarter. Adding to this pressure, we’ve seen consistent foreign portfolio outflows, with over $4 billion pulled from Indian markets in the first quarter of 2026. Consequently, implied volatility in USD/INR options is rising, signaling market expectation of bigger price swings ahead.
For derivative traders, this means we must price in the risk of sudden regulatory changes, as the RBI has more tools available from its 2013 and 2025 interventions. While the central bank restored some flexibility for NDF hedging and related-party deals last year, the caps on net open positions remain a key restriction. This suggests that strategies should be cautious of holding large, one-sided speculative positions, as the RBI has shown it will act to disrupt them.
We should remain alert for the deployment of other measures if the rupee weakness persists. Looking back at the playbook used in previous years, this could include things like gold import curbs or special non-resident deposit facilities to attract dollar inflows. These actions, if implemented, would directly impact currency liquidity and derivative pricing.
