RBI forex stance 2026: focus on rupee volatility

RBI reiterates its exchange-rate approach

The Reserve Bank of India (RBI) said its foreign exchange market intervention is designed to curb excessive volatility, not to target any specific rupee level. RBI Governor Sanjay Malhotra reiterated the stance during the central bank’s monetary policy announcement. He said India’s exchange-rate policy remains aligned with the long-standing principle of a market-determined currency. The RBI, he added, steps in only when currency moves become excessive or disruptive and do not reflect underlying economic fundamentals. The remarks come amid sharp swings in the rupee over recent weeks. Market participants have been closely tracking regulatory steps and the central bank’s response to global uncertainty. The RBI’s messaging seeks to clarify that intervention is not a commitment to defend a fixed band. Instead, the focus is on orderly market conditions.

Policy decision: repo rate held at 5.25%

In its first monetary policy announcement for FY2026-27, the RBI kept the policy repo rate unchanged at 5.25%. The central bank cited rising global risks and geopolitical tensions as part of the backdrop for its decision. The policy context matters for currency markets because interest-rate expectations influence capital flows and hedging activity. The RBI’s communication linked external uncertainty with heightened sensitivity in foreign exchange trading. While the policy decision was on rates, the governor’s comments on FX intervention addressed market concerns about rupee stability. The RBI indicated it would continue to act “judiciously” to prevent volatility from feeding into destabilising expectations. This framing highlights a preference for smoothing sharp moves rather than setting a rupee target.

What the governor said on forex intervention

Malhotra said RBI intervention is limited to smoothing excessive and disruptive volatility in the foreign exchange market. He stated that the RBI does not target any particular price band for the rupee. The governor also emphasised that the central bank does not aim to defend any specific level, intervening only to prevent disorderly moves. He warned that unchecked volatility can create self-fulfilling expectations, amplifying currency movements beyond fundamentals. The RBI’s position is that intervention is a tool to dampen disruptive swings, not to engineer a particular exchange rate. The comment was positioned as a reaffirmation, not a change in policy. It also signals that the RBI is monitoring market microstructure and sentiment-driven moves.

Rupee’s recent swings: 91 to above 95, then back

The rupee’s recent path underscores why the RBI is emphasising volatility management. The currency was trading near 91 per US dollar in early March, then saw heightened volatility and briefly crossed the 95 mark during the month. It later stabilised and was cited as trading around 92.5 per dollar. Separately, the rupee weakened to about 93.3 per dollar on Tuesday after a brief period of stability. These moves occurred alongside shifting domestic policy measures and geopolitical uncertainty. The RBI’s statement was framed against this backdrop of rapid changes over short periods. For businesses and investors, sharp swings complicate hedging decisions and can affect pricing of imports and liabilities.

Rupee slips after RBI partially unwinds FX restrictions

The article notes that the rupee came under pressure after the RBI decided to partially unwind recently imposed foreign-exchange restrictions. Those measures, introduced a few weeks earlier, had supported the rupee by limiting arbitrage opportunities between onshore and offshore markets. Their rollback was seen as increasing trading flexibility while also reintroducing volatility into currency flows. This sequence illustrates how regulatory adjustments can influence near-term FX behaviour. It also explains why some market participants view currency moves as closely tied to policy signals. Even when a measure is intended to improve market functioning, it can alter positioning and liquidity conditions. The rupee’s retreat to about 93.3 per dollar was presented in this context.

April forex curbs aimed at speculation and arbitrage

A separate set of measures announced on 1 April sought to curb speculation, with the rupee described as recovering sharply after the restrictions were rolled out. The RBI targeted the rebooking of cancelled forex derivative contracts and tightened norms around related-party transactions. Under the changes described, if a company or trader cancels a dollar hedge, they can no longer re-enter the same trade to benefit from price movements. Banks were also barred from undertaking foreign exchange derivative contracts with related parties, as defined under Indian Accounting Standard (Ind AS) 2. A MUFG Global Markets Research report characterised these steps as part of a broader effort to close the arbitrage window between onshore and offshore markets. MUFG also noted the measures could widen spreads between the two markets and reduce liquidity over time.

How traders and analysts framed near-term levels

Some market participants linked the rupee’s sharp move to short-covering after the RBI measures. Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, said the rupee was expected to trade in a 92.50-93.50 range until a 10 April deadline, adding that further cues would come from the RBI’s policy “next week as well.” Mecklai Financial Services said 92.50-93.00 levels were likely to be tested and could be a zone for importers to cover payment liabilities over the next couple of months, while expecting a broader 91.20-96.00 range. Jateen Trivedi of LKP Securities said the near-term support was seen near 92.50 and resistance at 93.50, describing the recovery as a technical pullback after a sharp depreciation. The article also cited a key resistance zone of 93.50-93.60 watched by traders.

Intervention channels: spot, NDF, reserves and forwards

The RBI has been described as intervening in both the spot and offshore non-deliverable forward (NDF) markets to prevent sharp rupee moves. A forex trader at a private bank estimated that the RBI may have sold about $1 billion to $1 billion during a day, mostly in the NDF market, when the rupee touched a record low. The RBI’s reserves are presented as a key tool used to curb volatility. In the week ending March 6, India’s forex reserves fell to $116 billion from $128.49 billion in the previous week, based on RBI data cited in the article. The RBI’s net short dollar position was reported as having swelled to nearly $100 billion from $17.8 billion in January, indicating dollar sales in the forwards market to contain volatility.

Broader pressures: crude, geopolitics, flows and risk sentiment

The article links rupee weakness to elevated crude oil prices, geopolitical tensions in West Asia, and foreign portfolio investor (FPI) selling. It states crude was above $100, keeping fundamental pressures intact. Analysts cited selling by foreign portfolio investors and elevated crude oil prices as ongoing headwinds, noting that higher energy prices raise India’s import bill and dollar demand. Risk sentiment also played a role, with one move attributed to improved sentiment after a speech by US President Donald Trump that hinted at negotiations rather than escalation in the US-Israel war against Iran, triggering a relief rally. The dollar index was cited as having softened slightly to 99.30, though still elevated. The combined impact of flows, oil, and global risk aversion kept volatility high.

Liquidity trade-off and RBI’s $13 billion injection plan

Supporting the currency can drain liquidity from the banking system, and the article flags liquidity as a concern. It notes that the RBI announced plans to inject more than $13 billion into banking system liquidity through a mix of bond purchases, foreign exchange swaps and repo operations. This highlights the balancing act between managing FX volatility and maintaining adequate rupee liquidity. It also underscores why intervention is not costless, especially in a volatile external environment. The dual approach presented in the article shows the RBI using multiple instruments simultaneously. The focus remains on orderly market conditions rather than a defended exchange rate.

Key figures and levels mentioned

Why the RBI’s wording matters for markets

By stressing that it does not defend a particular level, the RBI is setting expectations about how it will respond to future rupee moves. The article’s examples show the RBI using both rules and market operations to address sharp, potentially speculative activity. But it also highlights that broader drivers like crude oil, global risk aversion, and portfolio flows remain important. The RBI’s stance implies intervention is more likely during disorderly moves than during gradual depreciation. The references to spot and NDF operations, forward positions, and liquidity injections show how wide the toolkit can be. At the same time, the RBI’s message aims to prevent one-way positioning based on an assumed “line in the sand.” That distinction can affect hedging behaviour and short-term trading strategies.

Conclusion

The RBI has reiterated that its forex intervention is intended to smooth excessive volatility, not to target a rupee level, as the currency reacts to policy shifts, crude prices and geopolitical risks. With the repo rate held at 5.25% and the central bank continuing to combine FX operations with liquidity measures, markets will watch upcoming deadlines and policy signals for further guidance.