The Indian rupee rose by over 1% to 93.53 per US dollar after action by the Reserve Bank of India. The RBI also introduced tighter limits on banks’ net open rupee positions in foreign exchange markets.
Commercial banks were told to cap net open positions at $100m at the end of each business day, effective 10 April. This replaces the earlier framework that allowed positions up to 25% of a firm’s total capital.
Despite the bounce, the rupee is down 4% this month amid record foreign portfolio outflows. These include -$12.1bn from equities and -$1.6bn from bonds.
The move comes alongside pressure from trade and public finance conditions. India’s 10-year government bond yield is close to moving above 7.0% for the first time since July 2024.
We recall how the RBI’s intervention last year brought the rupee back to 93.53/USD after a sharp decline. That move, combined with new limits on banks’ open currency positions, provided only a temporary boost. The fundamental weaknesses that were present then are still driving the market today.
The heavy FPI outflows we saw in 2025 have not reversed course. In fact, data for the first quarter of 2026 shows that foreign investors have continued to be net sellers, pulling a further $5.2 billion from Indian markets. This persistent selling pressure places a natural cap on any potential rupee strength.
Structural headwinds from trade also remain a major concern. India’s trade deficit widened again in February 2026 to $22.5 billion, putting consistent downward pressure on the currency. These fundamental factors suggest that the rupee’s path of least resistance is downwards.
Last year, we watched the 10-year Indian government bond yield push toward the 7.0% mark; it has since crossed that level and stabilized around 7.15%. This signals ongoing fiscal pressure and makes holding rupee-denominated debt less attractive for foreign capital. The elevated yields reflect underlying risks that weigh on the currency’s value.
For derivative traders, this suggests that any short-term rupee strength should be viewed as an opportunity to position for further weakness. The rupee already weakened past the 95/USD mark earlier this quarter, establishing a new range. Using forward contracts or buying USD call options could be a way to hedge against or speculate on a move towards higher levels.
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