India’s currency management strategy has entered a more interventionist phase as the Reserve Bank of India (RBI) moves to directly restrict market positioning rather than relying solely on traditional forex operations. According to the latest regulatory directive, the central bank has capped banks’ net open currency positions at $100 million at the end of each trading day, effective April 10, in a bid to limit speculative bets against the rupee.

This step follows a period of acute pressure on the domestic currency, which has weakened to record lows, breaching the 94-per-dollar mark. The decline has been particularly sharp since the escalation of the Iran conflict, which has triggered a spike in crude oil prices, global risk aversion, and sustained capital outflows from emerging markets, including India.

The RBI’s decision reflects growing concern over the effectiveness and cost of its earlier intervention strategy. In recent weeks, the central bank has reportedly drawn down more than $30 billion from its foreign exchange reserves while attempting to stabilize the rupee through spot and forward market operations. However, these measures have had limited success in containing depreciation pressures.

The new framework signals a clear tactical shift. Instead of absorbing market pressure through reserve depletion, the RBI is attempting to curb the build-up of speculative positions at the source. By capping the exposure banks can carry, the central bank is effectively forcing a reduction in large directional bets, particularly those favoring a weaker rupee.

This approach also acknowledges the growing influence of offshore markets. A significant portion of rupee trading now occurs outside India, particularly through non-deliverable forwards in global financial hubs such as London and Singapore. These markets often drive price discovery, limiting the effectiveness of domestic intervention. The RBI’s parallel move to tighten reporting requirements for overseas affiliates further underlines its attempt to gain visibility into these flows.

However, the transition is not without friction. Banks have raised concerns about the timeline for compliance, warning that a rapid unwinding of existing positions estimated at around $30 billion could result in mark-to-market losses. There are also operational challenges, especially for global institutions that must reconcile Indian regulatory requirements with overseas data privacy and reporting norms.

From a market standpoint, early signals suggest stress in positioning. Offshore dollar-rupee forward points have already surged, indicating a scramble among participants to reduce exposure ahead of the new rules. This suggests that near-term volatility may increase before stabilizing.