RBI’s new forex rules signal shifts in currency strategy; banks now on frontline

RBI measure will bring some temporary relief to the rupee, but appreciation will be limited because fundamentals remain unfavourable, treasury officials said.“Currency appreciation may be limited to the extent of unwinding of these current leveraged positions. But once that is settled, I think the currency will again follow the fundamentals, and as long as this crisis continues, rupee will depreciate,” Reddy of Karur Vysya Bank said.Following the central bank move, the rupee gained 1.3% to touch a one-week high of 93.59 per dollar on Monday, before shedding gains to hit a new low of 95.1250. Likely RBI intervention lifted it to 94.83 at close, little changed from ⁠its previous close.

The currency has now fallen 4.5% since the West Asia war started on 28 February, and over 11% through FY26.Since the war began, Brent crude prices have risen over 60%, raising global energy concerns. On Monday, it traded at around $115. The balance of payments situation may be worsening as well.

India's current account deficit could widen to $35 billion in FY26 and at least $40 billion in FY27 if the crisis drags on, Gaura Sengupta, chief economist at IDFC First Bank said, straining the rupee further and limiting the RBI’s room to intervene aggressively.“The RBI’s ability to intervene as in FY26 is constrained by the fact that the forward book is already large. Its last known figure was $67.7 billion net dollar short as of January. It has likely gone to around $80 billion net dollar short, if not more,” Sengupta said.