RBI intensifies intervention in offshore market to stabilize rupee amid tariff pressures

Core Insights - The Reserve Bank of India (RBI) has significantly increased its intervention in the offshore non-deliverable forwards (NDF) market to prevent a decline in the rupee, which reached a record low following increased tariffs on Indian imports by the US administration [9]. Group 1: NDF Market Activity - Short positions in the up to one-month NDF segment rose to $5.8 billion in August from $2.5 billion in June, while positions in the one-to-three months bucket increased to $14.4 billion from $11.8 billion during the same period [9]. - This increase marks the first significant build-up in nearly five months, although the RBI's overall net exposure continues to trend downward [9]. Group 2: Currency Performance and Interventions - The rupee traded relatively stable between 86/$1 and 87/$1 since February, with occasional strengthening to 84/$1, but renewed depreciation past the 87/$1 mark in August and 88/$1 in September prompted fresh intervention [4][5]. - The rupee hit a record low of 88.81/$1 on September 30, and with tariffs still in place, downward pressure on the currency is expected to persist [8]. Group 3: Economic Implications - FPI outflows turned more negative in August, necessitating RBI's intervention to alleviate depreciation pressure on the rupee [7]. - Spot interventions, where the RBI sells dollars and absorbs rupees, can tighten banking system liquidity, as seen in a similar episode in December 2024-January 2025 that turned system liquidity negative [7].