RBI draws ‘Lakshman Rekha’ to curb rupee fall, caps banks’ open positions at $100 million

The Reserve Bank of India has stepped in to contain rising currency volatility, directing banks to limit their net open position in the rupee to $100 million at the end of each trading day. The move comes amid a sharp and sustained depreciation of the Indian currency, signalling the central bank’s concern over speculative activity and market instability.

Under the new directive, all authorised forex dealers must comply by April 10. The restriction is aimed at curbing excessive dollar bets by banks in the onshore market, which are believed to be contributing to sudden swings in the rupee. By tightening these limits, the central bank seeks to stabilise the currency and prevent abrupt gap-down openings driven by speculative positioning.

The intervention follows a steep decline in the rupee, which recently touched a record low of ₹94.84 against the US dollar. Since the escalation of conflict in West Asia, the currency has weakened significantly, losing nearly 4 percent. Over the current financial year, the rupee has depreciated by more than 10 percent, marking its sharpest fall in over a decade.

Rising global crude oil prices, particularly Brent crude, have added pressure on the currency by widening India’s import bill. At the same time, heavy outflows by foreign investors from Indian markets have further intensified the downward trend, pushing the rupee closer to the psychological ₹95 mark against the dollar.

The RBI’s move targets large unhedged foreign exchange positions maintained by banks, which can amplify intraday volatility. By enforcing stricter limits, the central bank aims to reduce speculative trading and bring greater discipline to the forex market, ensuring stability amid external economic pressures.