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Informist, Thursday, Nov. 13, 2025

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India's heightened intervention in the offshore non-deliverable forwards and domestic spot market has curbed speculative trading in the currency market, according to dealers. However, this has also resulted in subdued volatility in the exchange rate and may potentially lead to a fall in hedging activity, they said.

 

Since September, the RBI has ramped up its defence of the Indian rupee and kept it from slipping below the 88.80-per-dollar mark, by intervening in both the NDF and the spot market actively. In fact, the RBI has gone out of its way on some days to push the Indian unit sharply higher against the dollar, rather than just preventing it from falling. Case in point: On Oct. 15, the Indian unit posted an intraday gain of 89 paise, the most since November 2022, all thanks to the RBI.    

 

"RBI has done a good job on FX management. Their intervention has pushed out speculators to a large extent and volatility or standard deviations have reduced greatly," said Anshul Chandak, treasury head at RBL Bank.

 

Lack of speculative bets in the currency market has reduced the pressure on the Indian unit and made the RBI's job of supporting the rupee easier, dealers said. Since September, the rupee has depreciated only 0.5% against the dollar, while the dollar index, which measures the dollar's strength against a basket of six currencies, has risen almost 2%. The RBI has spent almost $5 billion of its foreign exchange reserves since Aug. 29 to keep the rupee on a tight leash.

 

"Build-up of speculative bets is sort of a self-fulfilling prophecy. RBI does not want to get into a zone where a lot of speculators come in and they have to spend more reserves to deal with that," said Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services. 

   

To be sure, market participants got an inkling about Governor Sanjay Malhotra-led RBI's discomfort over the build-up of speculative bets in the market after it first used brute force to support the rupee in early February.

 

"RBI is ensuring that the market does not get predictable even when it is trading in familiar territories," a senior treasury official at a state-owned bank said. "But this is also leading to the market not reflecting the fundamentals."

 

Dealers pointed out that traders are even refraining from placing speculative bets in the offshore NDF market due to the RBI's strong presence there. Case in point: The rupee has opened with a gap of more than 10 paise on only nine of the 48 trading days since the beginning of September, as against 22 of the 48 days before that.

 

Market participants said the central bank's resolute intervention in the currency market likely has roots in its unwillingness to let the rupee succumb to the fallout of tariffs imposed by the US, especially when trade deal negotiations between Washington and New Delhi are still underway.

 

In August, the US imposed an import tariff of 50% on Indian goods, half of which was a penalty for purchasing crude oil from Russia. Since then, both countries have held multiple rounds of negotiations. US President Donald Trump Monday said the US was coming closer to making a "fair trade deal" with India, adding that the tariff would come down at "some point."

 

Some market participants, however, pointed out that the apex bank's stranglehold on the currency risks the return of complacency among traders and companies, when it comes to hedging their foreign exchange exposures. 

 

Hedging activity had picked up ever since Malhotra took over as RBI governor in December, as the central bank had then allowed a much higher degree of movement in the exchange rate. This was in sharp contrast to the zero-volatility exchange rate strategy under the previous RBI Governor Shaktikanta Das, which eventually led to a dip in hedging by importers and exporters.

 

Since the central bank has managed to keep the rupee afloat for the better part of the period of looming uncertainty related to US tariffs, market participants now expect considerable movement in the domestic currency only once a trade deal between India and the US comes through.

 

"Going forward, we could see rupee outperformance against dollar and many other currencies," Chandak said. "We could see the pair at 86.50 in three months, driven by strong inflows in debt markets and trade deal."  End

 

US$1 = INR 88.67

 

Edited by Avishek Dutta

 

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