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Reserve Bank of India Intervenes represented in an image.

Reserve Bank of India Intervenes to Unveil Game-Changing Positive Turnaround in NDF Market Amid Rupee Crisis

In a strategically critical move, the Reserve Bank of India intervenes in the Non-Deliverable Forward (NDF) market to bolster the Indian Rupee, which is perilously close to hitting its all-time low against the U.S. dollar. This calculated intervention is especially noteworthy considering the broader economic context where multiple Asian currencies are experiencing a decline, thereby underlining India’s proactive currency management approach.

Reserve Bank of India Intervenes Through BIS and U.S.-Based Bank to Fortify Rupee in the Face of Declining Asian Currencies

Recently, the Indian Rupee (INR) has been in the spotlight for less than favorable reasons, hovering around an exchange rate of 83.1525 to the U.S. dollar. This precarious situation is made all the more alarming as it follows a record low of 83.29 reached in October 2022. Given these numbers, it’s understandable why stakeholders are worried—more so because the Indian Rupee has managed to escape the downward trend seen in other Asian currencies, like the Japanese Yen and the Chinese Yuan.

The Intricacies of Non-Deliverable Forwards (NDF)

Before delving into the RBI’s specific actions, it’s essential to understand what Non-Deliverable Forwards are. In simple terms, NDFs are financial derivative instruments that allow offshore investors with limited access to the domestic currency markets to hedge their exposure or engage in speculation. These are futures contracts that are settled in U.S. dollars, thus avoiding the need for actual delivery of the currency in question, which in this case is the Indian Rupee. The Reserve Bank of India intervenes in this market as a tactical measure to maintain the rupee’s relative stability.

The How: Mechanisms Behind the Intervention

Anonymous sources within the banking sector have revealed that the RBI is employing a two-pronged approach by intervening in the NDF market via the Bank of International Settlements (BIS) and a significant U.S.-based bank. Typically, these interventions are carried out before local over-the-counter (OTC) markets open for the day. “The goal is multi-faceted. Primarily, it sets the financial tone for the day and serves as a cautionary signal to speculators, letting them know that the RBI is vigilant,” said the head of treasury at an unnamed private sector bank.

A Global Strategy: Not Just Focused on Asia

What stands out is that the Reserve Bank of India’s interventions aren’t merely confined to the trading hours within the Asian financial markets. These actions extend to U.S. trading sessions, particularly if indicators suggest that the USD/INR exchange rate is on an upward trajectory. For example, during one Wednesday’s U.S. trading hours, the 1-month USD/INR NDF surged to 83.44. This level implied a potential spot rate of around 83.35. However, by the time local Indian OTC markets opened the next day, the contract had retreated to 83.20, and the spot rate had similarly dropped to 83.12.

Augmenting Support Through Multiple Channels

In addition to its presence in the NDF market, the RBI is also suspected of injecting dollars into the local OTC market through Indian public sector banks. This strategy is part of the central bank’s broader approach to currency stabilization, aimed not just at offshore markets but also at reinforcing the rupee domestically.

Long-Term Implications: Why a Stable Rupee Matters

A weak rupee can set off a chain reaction impacting several facets of the Indian economy. From rising import costs to increased inflationary pressures, the long-term consequences can be far-reaching. Furthermore, currency instability can also serve as a deterrent to foreign investments, which are crucial for a developing economy like India that is keen on attracting overseas capital for its growth.

The Future: Challenges and Prospects

While the immediate actions taken by the RBI have brought some relief, the more substantial task lies in maintaining this newfound stability. Short-term interventions like these are typically not long-lasting solutions. The country will need to implement broader structural reforms and robust macroeconomic policies for enduring stability.


The Reserve Bank of India intervenes in a manner that sets a commendable precedent for other central banks grappling with depreciating national currencies. By acting decisively through multiple channels—both domestically and internationally—the RBI has succeeded in instilling discipline among currency speculators. This move also acts as a buffer against immediate market volatility. As the global financial landscape continues to fluctuate, the RBI’s proactive steps shine as a beacon, guiding other emerging markets on how to steer their currencies away from economic hazards. With these actions, the Reserve Bank of India not only solidifies its reputation as a vigilant financial institution but also places itself at the forefront of innovative, responsive central banking.

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