The rupee breached the 95/USD-mark in intra-day trade on Monday and settled 7 paise higher at 94.78 (provisional) against the American currency after Iran war escalation jolted global markets, fuelling rupee volatility and risk-off sentiment.
The research report from the State Bank of India’s economic research department said India has adequate foreign exchange reserves of more than 10 months of imports. These numbers, by any stress of imagination, are significantly comfortable.
“The USD 700 billion plus external reserve, we believe, is sufficiently strong to deter speculative moves by intervening in the foreign exchange market to prop up the rupee.
“There is no reason to suggest that we should use FX reserves for rainy days only as mentioned hitherto, and we believe there is still time to intervene in the market to prop up the rupee if it is so desirable,” the report said.
It also said that the oil marketing companies (OMCs) need to be offered a special window by the regulator that separates their daily demand (around USD 250-300 million) from the market chores (annualised USD 75-80 billion demand could be taken out).
This should allow better visibility on genuine foreign exchange demand and supply dynamics and in measuring the efficacy of various countermeasures initiated by the regulator to curb unwarranted volatility, it added.The SBI report further said that the attempt to rationalise the open position for banks by the RBI, though useful, is likely to have created a significant divergence between the onshore and offshore markets.
Indian banks, both public and private, are generally long onshore and short offshore, while foreign banks exhibit a contra trend, it added.
As banks attempt to unwind their positions, liquidity shortages are likely to emerge, creating a vicious cycle where offshore premiums could witness a sharp rise.
Thus, the NDF (non-deliverable forward) premia for 1 year shot on Monday to 4.19 per cent (from 3.43 per cent), while 1-month premia spiked from 0.33 per cent to 0.67 per cent, and the NDF /Offshore rates were quoting at Rs 98.41.
“…we believe the USD 100 million limit should be imposed on the trading book only and not on the whole bank book level as it creates operational challenges,” the report said.
This is also important as many FPIs and some FDI players would be taking out their funds in the present situation (reallocation/profit booking) and would be placing genuine demands on banks to fulfil on an order-matching basis, it added.
Through its circular dated March 27, 2026, the RBI capped the Net Open Position (NOP-INR) for banks at USD 100 million, with compliance required by April 10.