Rupee volatility reduced but is still not behind us: experts
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The Reserve Bank of India (RBI), has in the space of around ten trading days at the forex markets, introduced two policy measures—seen as regulatory tightening moves—to reduce volatility of the rupee, which have frankly taken treasury heads of India’s banks by shock. It will weigh in on treasury income and overall profitability of banks’ balance sheets in the March-ended quarter. The RBI has barred banks from offering non-deliverable forward (NDF) derivative contracts involving the rupee, to resident or non-resident clients. Additionally, the central bank has also authorised dealer banks to cap their net open position (NOP) at $100 million at the end of each trading day. Banks need to comply to this regulation by April 10.
On Wednesday, in the post monetary policy, RBI governor Sanjay Malhotra said these regulations were temporary. “When there is excessive volatility, when there is excessive building up of positions, such kind of measures are taken. They are not signalling any structural change. These are not measures which are going to remain there forever,” Malhotra said. The rupee had depreciated to a record low of 95.2 against the dollar on March 30 but volatility has reduced and it has appreciated since then to 92.61 on April 9 (see chart). But the dilemma for the central bank is that while it manages and regulates supply of the rupee, it has not been able to guide its direction. This will not happen till internationalisation of the rupee picks up pace.
Directional downward pressure
The directional pressure on the rupee is still towards depreciation. But it is the pace of depreciation which though unclear, is still the concern. Several external factors will have an impact on the dollar in coming months: particularly the upcoming US Federal Reserve rate action, direction of capital fund outflow and how trade tariff concerns play out.
"The regulations have achieved their purpose in making the rupee more stable. But the volatility may not be completely behind us, given the fragility of the current ceasefire to the West Asia war", says Sakshi Gupta, principal economist at HDFC Bank.
“What the RBI is trying to do is to take out the arbitrage opportunity to raise a cheaper rupee. It wants to curtail volatility and not create a level for the rupee,” says Somnath Mukherjee, chief investment officer, ASK Private Wealth.
Anubhuti Sahay, Head, India, Economics Research, Standard Chartered India, says: The tolerance for the rupee to find its own equilibrium, will be higher amid weak capital inflows and widening in current account deficit."
India’s stock market indices have corrected around 10% in 2026, but India’s valuation growth dynamics still look less attractive. Stock prices might need a further correction, or the growth profile will need to improve.
The RBI, in its latest monetary policy on April 8, lowered the FY27 GDP forecast to 6.9% compared to 7.6% for the current fiscal. India is one of the few markets which has been able to withstand the sell-off by foreign funds. In the first three months of 2026, foreign institutional investors (FIIs) have been net sellers of Indian stock worth ₹1.70 lakh crore while domestic institutional investors (DIIs) have bought Indian stock worth ₹2.5 lakh crore.
The time to reduce forex tightening?
Going by the RBI Governor Malhotra’s commentary at the recent policy meeting, it is quite likely that the central bank will wait for a more definitive signal that the global economic shock is behind us, for them to start removing the recent forex policies. Though some stability has come in, the decision to roll back the regulation will depend on the durability and the result of a resolution of the conflict. One cannot say whether the rupee volatility is completely behind us, given the fragility of the US-Iran war ceasefire. Only if a fresh agreement between the warring nations is arrived at and is de-escalation of the conflict takes place, can we see a continuation of some more stability for the rupee. But even if that happens, it is unlikely that we could see a significant appreciation for the rupee.