Rupee To Remain Weak On Challenging Global Environment
The rupee closed up 4 paise at 93.06 against the dollar, after closing at 93.10 in the previous session (on Thursday). Markets were closed on Friday on account of Good Friday.
Mumbai: The rupee traded within a tight range against the dollar on Monday, appreciating to a two-week high of 92.7925 in early trade on central bank measures to curb speculative and arbitrage trades but lost most of it as oil marketing companies, importers bought dollars to hedge their payments.
The rupee closed up 4 paise at 93.06 against the dollar, after closing at 93.10 in the previous session (on Thursday). Markets were closed on Friday on account of Good Friday. The rupee had appreciated 173 paise on Thursday, its best single day gain in 13 years on Reserve Bank of India (RBI) measures aimed at curbing speculative activity.
The RBI last week took a series of steps to defend the ongoing weakness in the currency by barring banks from offering rupee non-deliverable forwards to resident and non-resident clients and said companies cannot re-book cancelled forwards. The move followed tighter limits on banks' forex positions in the domestic market to $ 100 million by the end of each business day. The banks have to comply with this directive by April 10, 2026.
Traders said that the cost of hedging against rupee weakness has risen as importers rushed to lock in stronger rupee levels for their forward dollar purchases. The premium for buying the dollar surged to 7.30 per cent for the first month which was 6 months high last seen in September on liquidity concerns and rate hike expectations by the RBI.
According to Reuters, Indian companies' activity in the non-deliverable forwards (NDF) market surged to over $7 billion on March 30, around seven times the average, signaling a rush to capture arbitrage opportunities created by banks’ unwinding positions following regulatory curbs.
“The ongoing geopolitical conflict has brought heightened volatility across financial markets. We expect that given the challenging global environment, the rupee to trade in the range of 93-95/$ in the near term, with downside risks. We also expect India’s 10 year yield to trade in the range of 6.9-7.10 per cent in the near term, with an upward bias,” said Sonal Bandhan economist at Bank of Baroda in a report.
All eyes are now on the RBI’s Monetary Policy Committee (MPC) that began its three day deliberations on Monday with the outcome known on Wednesday.
Globally, a lot has changed since the RBI announced its last policy in February 2026. With the outbreak of the United States-Israel war with Iran (on Feb 27), Brent crude prices which were below USD 70/bbl just a month back have touched almost USD 120/bbl briefly. Global central banks (Fed, ECB, BoE, BoJ) have held rates in March and signaled an increased probability of rate hikes due to inflation risks.
Says Deepak Agrawal, chief investment officer debt at Kotak Mutual Fund, “While headline inflation at 3.21 per cent remains within the 4 per cent target and GDP growth holds steady at 7.8 per cent, supply-side pressures from energy costs pose durability risks. Capital flows to emerging markets have turned cautious, pressuring current accounts and financial stability. Against this backdrop, the MPC likely faces a status quo decision, maintaining the 5.25 per cent repo rate and neutral stance while preserving flexibility to respond should external pressures intensify further."