The Reserve Bank of India (RBI) on April 20 partially rolled back restrictions on offshore rupee derivatives, reopening access to the non-deliverable forward (NDF) market while retaining a key cap on risk-taking. The move comes after weeks of intervention to stabilise the currency following its sharp slide in March.
Under the revised rules, banks can once again offer rupee NDF contracts to all users, including offshore participants, and allow clients to rebook forex derivative positions. However, lenders must continue to cap their net open rupee exposure at $100 million per day—a signal that the central bank is not ready to fully step away from market controls.
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Here’s what happened today and why traders reacted
Markets reacted with measured optimism rather than outright bullishness.
The rupee traded with a firmer bias in early sessions, while forex desks reported improved activity in offshore-linked trades. Banking stocks saw selective buying, but broader indices remained range-bound.
“The RBI has reopened the door, but it hasn’t taken the guardrails off,” said a treasury head at a state-run bank. “That’s why you’re seeing stability, not a rally.”
Another forex trader added, “Liquidity is coming back into the system, but the $100 million cap is a clear message—don’t rebuild large speculative positions.”
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What changed — and what stayed tight
The rollback marks a shift from emergency defence to controlled normalisation, but the structure of restrictions shows the RBI is still wary of volatility.
What has been eased:
- Offshore NDF trading is open again to all participants
- Banks can rebook forex derivative contracts
- Restrictions on user access have been removed
What remains firmly in place:
- $100 million cap on daily net open rupee positions
- Close monitoring of offshore speculative flows
- RBI’s readiness to tighten rules again if needed
This combination effectively restores market function while limiting leverage.
Why the RBI is acting now
The central bank’s timing reflects a stabilisation in conditions that had triggered panic just weeks ago.
In March, the rupee had plunged to a record 95.21 per US dollar, pressured by a spike in crude oil prices above $100 per barrel and escalating geopolitical tensions, including the US–Iran conflict. Offshore markets saw aggressive speculative positioning, widening the gap between NDF and onshore rates.
That pressure has since eased.
Banks unwound nearly $40 billion in offshore positions by April 10, according to market estimates, sharply reducing leveraged bets.
RBI Governor Sanjay Malhotra had already hinted at a rollback.
“These measures were in response to specific market conditions and were always intended to be temporary,” he said in the recent policy review.
What impacted the market today?
Beyond the RBI move, multiple factors shaped market sentiment:
- Currency stability expectations improved after the rollback
- Oil prices remained elevated, limiting aggressive risk-taking
- Global cues were mixed, keeping equity markets range-bound
- Corporate earnings from large banks and IT firms provided selective support
Stronger-than-expected results from frontline banks boosted financial stocks, while IT exporters gained modestly on expectations of more stable currency movements.
However, concerns around input costs and global uncertainty capped broader upside.
Impact on traders: more access, less aggression
For traders, the reopening of the NDF market restores opportunity—but not the ability to take outsized bets.
- Arbitrage between offshore and onshore markets is back
- Liquidity conditions are improving across forex segments
- Short-term trading strategies are becoming viable again
At the same time, the exposure cap forces discipline.
“Earlier, positions could build very quickly in offshore markets,” said a derivatives trader. “Now, balance sheet limits will keep that in check.”
Impact on investors: stability over speculation
For investors, the RBI’s approach is more reassuring than restrictive.
- Lower currency volatility reduces portfolio risk
- Foreign investor confidence could improve gradually
- Export-oriented sectors like IT and pharma gain visibility
A domestic fund manager said, “This is a positive for investors because it reduces tail risks. The RBI is allowing markets to function, but without letting instability return.”
What impact could be seen in coming days?
The near-term outlook hinges on whether stability holds.
Key triggers to watch:
- Crude oil prices, which remain the biggest external risk
- Foreign capital flows, especially into emerging markets
- Fresh speculative build-up in offshore currency markets
If these remain contained, the rupee could trade in a narrower band compared to the extreme volatility seen in March.
What impact on investor portfolios?
Investors are likely to see a more predictable environment in the coming weeks:
- Reduced forex volatility may support equity valuations
- Sectoral stability could improve earnings visibility
- Currency-linked risks in portfolios may decline
That said, global macro risks still dominate the broader outlook.
Key takeaway
The RBI has made a calculated move—restoring liquidity without reopening the door to excess risk.
For traders, the message is clear: opportunities are back, but leverage is capped.
For investors, stability is improving—but the global backdrop still demands caution.
