The Reserve Bank of India (RBI) has partially rolled back some of the foreign exchange (FX) curbs that were recently implemented to counteract one-sided depreciation of the Indian Rupee (INR), according to DBS Group Research economist Radhika Rao [1]. The RBI's latest measures restore certain flexibilities, including related-party and Non-Deliverable Forward (NDF) hedging, while maintaining nominal ceilings on net open positions and continuing to restrict banks from engaging in the full range of FX derivative transactions with related parties [1].
An official circular issued on Monday states that the central bank will now permit transactions in related-party deals, such as the cancellation and rollover of existing contracts, and allow back-to-back hedging in the NDF market to offset risks from FX contracts [1]. These adjustments come after the initial curbs, imposed earlier in the month, led to disruptions in liquidity and positioning in both onshore and offshore trades [1].
Since the introduction of these administrative measures last month, the rupee has strengthened by nearly 2% against the dollar, recovering from record lows of around 95 per USD. However, the rupee continues to underperform on a year-to-date basis compared to regional peers [1]. The RBI's decision appears aimed at balancing the need to support genuine hedging activities while limiting arbitrage and speculative behavior in the currency market [1].
DBS notes that, in addition to the special oil dollar window, the RBI still has other tools available from its 2013 playbook, such as gold import curbs, concessions for debt investors, special non-resident deposit facilities, and, as a last resort, policy tightening to attract rate-sensitive flows [1].
CONCLUSION
The RBI's partial easing of FX curbs is intended to address market disruptions while maintaining oversight on speculative activities. Although the rupee has rebounded from record lows, it remains an underperformer year-to-date, and the central bank retains additional policy options if needed. Market participants are likely to view the move as a measured response to evolving currency pressures.