The Reserve Bank of India announced new regulations on the Indian Rupee on Wednesday 1 April. Authorised dealers are now banned from offering non-deliverable INR derivative contracts to resident or non-resident users, with immediate effect.
The move limits access for non-banks to participate directly in INR non-deliverable forward (NDF) markets. It also widens the split between onshore and offshore markets and aims to reduce spillover from offshore trading into onshore rupee weakness.
Reported near-term effects include higher NDF forward points and implied yields. Other effects include wider NDF spreads versus onshore forwards and steeper FX forward curves.
The changes were also linked with lower USD/INR forward outrights in the NDF market. Onshore USD/INR was described as falling by more, implying a stronger rupee.
MUFG expects the underlying flow picture to still point to rupee weakness over time. It also noted that if oil prices keep rising in an adverse scenario, USD/INR at 97.50 or higher could be possible.
We are now seeing the long-term effects of the RBI’s squeeze on non-deliverable derivatives that we analyzed back in April of 2025. The initial Rupee strength that followed the announcement proved temporary, as the underlying economic pressures have since reasserted themselves. Those fundamental drivers for a weaker Rupee are now more pronounced than they were a year ago.
The prediction of pressure from rising oil prices has materialized, with Brent crude now trading consistently above $95 per barrel, a significant increase from last year. This has widened India’s current account deficit, which latest Q4 2025 data showed at 2.1% of GDP, putting sustained, organic pressure on the currency. The structural need for dollars to pay for energy imports continues to outweigh the RBI’s regulatory actions.
Looking at the market today, the USD/INR has steadily climbed and is now trading near the 86.00 level, after breaking its previous record highs late last year. RBI’s own data shows foreign exchange reserves have dipped by approximately $12 billion since January, indicating it is selling dollars to prevent a more rapid depreciation. This managed decline suggests a policy of smoothing the path of weakness rather than reversing it.
For derivative traders in the coming weeks, this environment confirms that buying USD/INR on any dips remains the favorable strategy. The gap between the onshore and offshore forward markets, a direct result of the 2025 regulations, continues to present pricing opportunities. Given the clear but managed depreciation trend, using call options on USD/INR could be an effective way to position for further upside while managing downside risk from any surprise RBI interventions.
