The RBI’s decision to limit banks’ net open rupee positions to $100 million per day may provide temporary relief to bearish sentiments in the rupee, but the Indian currency will continue to take medium and long-term direction from other factors such as energy flows through the Strait of Hormuz.
A forced adjustment of net open position (NOP) limits could trigger a sharp corrective move in favor of the rupee as banks rush to rebalance positions, says Anindya Banerjee, head of commodity and currency research at Kotak Securities. However, he thinks that anything is likely to be temporary.
“We expect the RBI to lean against excessive volatility, potentially entering into forward dollar buying, especially given its existing short position,” he says.
Experts believe that beyond immediate technical fixes, the biggest driver remains intact – energy flowing through the Strait of Hormuz. Until there is a clear normalization on that front, elevated crude oil and gas prices will continue to put structural pressure on the rupee, they say.
The Reserve Bank of India (RBI) on Friday directed authorized dealer (AD) banks to limit their net open position in rupees (NOP-INR) in the onshore offerable market to $100 million at the end of each business day, in a move aimed at managing exchange rate volatility. The directive requires banks to comply with the revised limits as soon as possible, but no later than April 10, 2026.
The central bank said the decision was taken under provisions that allow it to set limits on open positions involving the rupee depending on prevailing market conditions. The limit is expected to curb excessive speculative positions and ensure the orderly functioning of the foreign exchange market.
The Indian currency has seen unprecedented volatility with the rupee losing more than 5% in March alone and over 10% in the current financial year. The local currency closed at 94.82 on Friday, down 86 pips from its previous close, weighed down by higher oil prices and a stronger dollar amid growing uncertainty over the war in Iran.
