Good News for Rupee Derivative Traders as RBI Lifts Curbs on Banks

In what would lift the mood of rupee derivative traders, the Reserve Bank of India (RBI) partially lifted some restrictions on rupee derivative trades imposed by the regulator on April 1, 2026. On this day, the central bank prevented banks from issuing non-deliverable forwards to clients and barred companies from reassessing forward contracts as part of its strategy to counter arbitrage trades, which caused fluctuations in the rupees exchange rate. The central bank further prevented banks from signing FX derivative contracts involving the rupee with their associated parties.

The Relaxation Made by the RBI

On April 20, 2026, the RBI rolled back the curbs that prevented banks from issuing non-deliverable forwards and companies from reassessing forward contracts. In addition, the central bank made a change to the restrictions on associated party deals to facilitate cancellation and rollover of ongoing transactions and contracts with a non-resident entity on a back-to-back basis. These relaxations come on the back of the measures the RBI adopted earlier this month to rein in the rupees slide. In late March, the rupee fell to a record low of 95 against the US dollar. According to media reports, the instructions issued on April 1 by the RBI were meant to be temporary. As the desired impact has already been achieved, these curbs are no longer required.

What Did the RBI Do to Counter Arbitrage Trades?

The RBI, on March 27, 2026, countered arbitrage trades by limiting net open rupee positions of the banks. However, this measure could not help stem the rupees slide as banks close their positions by offering them to corporations and related parties, the media report said.

The second round of restrictions, rolled out on April 1, 2026, helped the rupee recover around 2% against the USD. Since then, the rupee has remained within 92.50-93.50.

The bank's net open rupee position limit of $100 in the onshore market remains.

The RBI‘s Objective Behind Partial Relaxation

The RBI scrutinized corporate and related-party transactions following concerns of them skirting regulations and impeding efforts to lift the rupee. This move hints at the RBI’s intention to restore normal hedging while continuing to limit speculative trades that made the rupee vulnerable, according to news reports.

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