After Cracking Down Hard, Why Is RBI Now Softening Rupee Rules?
April 21, 2026
The easing is partial, not a full reversal. Banks remain restricted from undertaking the complete range of foreign exchange derivative transactions with related parties, and the $100mn cap on open positions — imposed on 27th March — stays in place
The Reserve Bank of India has loosened some of its most restrictive currency market measures, signalling a partial retreat from an unprecedented defence of the rupee that had effectively shut out one of the world's largest offshore currency markets.
The central bank said on Monday it would withdraw measures issued on April 1 that had barred lenders from offering rupee-linked non-deliverable forwards — the most widely used instruments for offshore rupee trading.
Under the revised rules, transactions permitted in related-party deals now include the cancellation and rollover of existing contracts, as well as those conducted via the back-to-back route, where parent entities of global banks hedge rupee-linked exposures with their Indian branches on behalf of overseas clients. The one-month dollar-rupee offshore contract rose 0.5% following the announcement, Bloomberg reported.
The easing is partial, not a full reversal. Banks remain restricted from undertaking the complete range of foreign exchange derivative transactions with related parties, and the $100mn cap on open positions — imposed on 27th March — stays in place.
Why RBI Acted
The original restrictions were introduced to curb speculative arbitrage trades that had pushed the rupee to record lows past 95 per dollar in late March, amid the oil shock triggered by the Iran war. The trades typically involved buying dollars onshore and selling them offshore, compounding pressure on the local currency. The measures had effectively closed off a $149bn-a-day offshore market, drawing complaints from overseas investors who warned the curbs were driving up hedging costs and eroding the appeal of Indian assets.
Monday's easing followed repeated requests from banks to relax the restrictions, the report said. Lenders argued that caps on related-party deals were also catching legitimate client hedging activity — collateral damage the RBI appears to have accepted needed addressing.
The Rupee's Recovery
RBI Governor Sanjay Malhotra had indicated as early as April 8 that the measures would not remain in place "forever," framing them from the outset as temporary. Since the initial restrictions were announced on March 27, the rupee has recovered more than 2%— providing the central bank with enough cover to begin unwinding the most disruptive elements of its intervention without appearing to abandon its defence of the currency.
The central bank said on Monday it would withdraw measures issued on April 1 that had barred lenders from offering rupee-linked non-deliverable forwards — the most widely used instruments for offshore rupee trading.
Under the revised rules, transactions permitted in related-party deals now include the cancellation and rollover of existing contracts, as well as those conducted via the back-to-back route, where parent entities of global banks hedge rupee-linked exposures with their Indian branches on behalf of overseas clients. The one-month dollar-rupee offshore contract rose 0.5% following the announcement, Bloomberg reported.
The easing is partial, not a full reversal. Banks remain restricted from undertaking the complete range of foreign exchange derivative transactions with related parties, and the $100mn cap on open positions — imposed on 27th March — stays in place.
Why RBI Acted
The original restrictions were introduced to curb speculative arbitrage trades that had pushed the rupee to record lows past 95 per dollar in late March, amid the oil shock triggered by the Iran war. The trades typically involved buying dollars onshore and selling them offshore, compounding pressure on the local currency. The measures had effectively closed off a $149bn-a-day offshore market, drawing complaints from overseas investors who warned the curbs were driving up hedging costs and eroding the appeal of Indian assets.
Monday's easing followed repeated requests from banks to relax the restrictions, the report said. Lenders argued that caps on related-party deals were also catching legitimate client hedging activity — collateral damage the RBI appears to have accepted needed addressing.
The Rupee's Recovery
RBI Governor Sanjay Malhotra had indicated as early as April 8 that the measures would not remain in place "forever," framing them from the outset as temporary. Since the initial restrictions were announced on March 27, the rupee has recovered more than 2%— providing the central bank with enough cover to begin unwinding the most disruptive elements of its intervention without appearing to abandon its defence of the currency.