MUFG reported that the Reserve Bank of India (RBI) announced new regulations on the Indian Rupee on Wednesday 1 April. Authorised dealers are now barred from offering non-deliverable INR derivative contracts to resident or non-resident users, with immediate effect.
The measures restrict access to the INR non-deliverable forward (NDF) market and widen the gap between onshore and offshore trading. The stated aim is to reduce spillovers from offshore NDF pricing into onshore INR weakness.
Immediate Market Impact
MUFG listed near-term market effects as higher NDF forward points and implied yields, wider NDF spreads versus onshore forwards, and steeper FX forward curves. It also noted a lower USD/INR forward outright in the NDF market and a larger fall in onshore USD/INR, implying a stronger rupee.
MUFG said it still expects the underlying flow backdrop to point to future INR weakness after the initial market adjustment. It added that in a scenario of rising oil prices, USD/INR could reach 97.50 or higher.
We are looking back at the Reserve Bank of India’s regulations from April 2025, which restricted non-deliverable derivative contracts for the Rupee. The stated goal was to curb currency weakness by separating the onshore and offshore markets. In the weeks that followed, this move did provide some temporary support for the INR as intended.
The long-term forecast for structural Rupee depreciation has since materialized over the past year. From a level of around 83.40 in April 2025, the USD/INR has steadily depreciated and is now trading above the 85.00 mark. This confirms that fundamental pressures, such as a widening trade deficit, have overshadowed the regulatory squeeze.
Trading Implications Today
A significant factor has been the rise in global energy prices, a key vulnerability noted in the original analysis. Brent crude oil, which was trading near $85 per barrel in early 2025, has since climbed to over $95 per barrel, increasing India’s import costs. This has put sustained downward pressure on the Rupee, contributing to its measured decline.
For traders today, this established trend suggests that buying USD/INR on any dips remains the favorable strategy. The fundamental picture of a strong dollar and a vulnerable current account for India has not changed. We should therefore view any short-term Rupee strength as an opportunity to build long positions in the USD/INR pair.
The possibility of USD/INR reaching much higher levels remains, especially if oil prices were to spike further. While the 97.50 level is an extreme scenario, traders could use long-dated call options to position for an acceleration in Rupee weakness. This strategy would offer significant upside if geopolitical events were to push commodity prices sharply higher.
