Even as the rupee is trading at an all-time low, SBI Research in its latest report said the Reserve Bank of India (RBI) should consider deploying its foreign exchange reserves to stabilise the local currency
amid heightened volatility triggered by the ongoing West Asia crisis.
Rupee under pressure amid global risk-off sentiment
The Indian currency breached the 95-per-dollar mark in intra-day trade on Monday, reflecting sharp pressure following escalation in the Iran conflict that rattled global markets. It later pared some losses to settle 7 paise higher at 94.78 (provisional) against the US dollar, though volatility remained elevated.
Forex reserves provide adequate buffer
In its note ‘Eco Wrap’, SBI’s economic research department said India’s external position remains robust, with reserves sufficient to cover over 10 months of imports, indicating a comfortable cushion against external shocks.
“The $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.
Special window for oil companies suggested
The report recommended that oil marketing companies (OMCs) be provided a separate window for their dollar requirements. Their daily demand, estimated at $250-300 million (or $75-80 billion annually), could be ring-fenced from regular market activity.
This, it said, would improve transparency in assessing genuine demand-supply conditions in the forex market and help evaluate the effectiveness of regulatory interventions aimed at curbing volatility.
Divergence between onshore and offshore markets
SBI Research flagged that recent steps by the RBI to rationalise banks’ open positions, while useful, may have led to a widening gap between onshore and offshore markets.
According to the report, domestic banks are typically long in onshore markets and short offshore, while foreign banks show the opposite positioning. As banks unwind these positions, liquidity constraints may emerge, potentially pushing offshore premiums higher.
Onshore market refers to currency trading within India under Reserve Bank of India regulations, while offshore market refers to rupee trading outside India (such as in global centres like Singapore or Dubai), where trades are not directly controlled by the RBI.
This trend was already visible on Monday, with non-deliverable forward (NDF) premia rising sharply. The one-year NDF premium jumped to 4.19 per cent from 3.43 per cent, while the one-month premium increased to 0.67 per cent from 0.33 per cent. Offshore rates were quoted at Rs 98.41.
A non-deliverable forward (NDF) is a type of currency contract traded in offshore markets where no actual delivery of rupees takes place; instead, the difference is settled in dollars based on the exchange rate at maturity.
Concerns over RBI’s NOP limits
The report also raised concerns about operational challenges arising from the RBI’s recent move to cap the Net Open Position (NOP-INR) for banks at $100 million.
“…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,” it said.
The central bank had, through a circular dated March 27, 2026, mandated compliance with the revised NOP limits by April 10.
FPI outflows may add to pressure
SBI cautioned that ongoing global uncertainty could trigger outflows from foreign portfolio investors (FPIs) and some foreign direct investment (FDI) players, as they rebalance portfolios or book profits.
Such moves would create genuine demand for dollars, placing additional pressure on banks to meet these requirements on an order-matching basis, the report added.
