On March 30, the rupee fell 0.3% to 95.2 per dollar, breaking the 95 per dollar level for the first time. The rupee lost 4.4% of its value in relation to the US dollar during the March quarter. The rupee closed at a record low of 94.83 per US dollar, down from 94.81 per US dollar on Friday.
The rupee lost the gains and dropped 160 paise from its opening level after the Reserve Bank reduced the net open position that banks can hold overnight at $100 million.
After the Reserve Bank of India tightened restrictions on lenders’ net open FX positions, traders in the Indian foreign currency market are preparing for a tumultuous week. Meanwhile, rising oil prices are predicted to keep pressure on government bonds, according to Reuters.
The rupee touched a record low of 94.84 against the dollar last week after declining by almost 1% for the fourth week in a row. The central bank announced Friday after market hours that banks must make sure their net open rupee positions in the onshore deliverable market at the end of each business day do not above $100 million by April 10.
As the rupee fell to yet another record low and overnight index swap rates experienced yet another wave of payment, India’s 10-year benchmark bond yield continued to increase in afternoon sessions, crossing the 7% barrier for the first time in more than 21 months. After closing at 6.9419% the previous session, the yield on the 10-year 6.48% 2035 bond reached a high of 7.0121%, the highest for a 10-year paper since July 5, 2024.
The Middle East war has increased concerns for India’s inflation and economic outlook, adding to the strain from global trade frictions, geopolitical flare-ups, and ongoing capital outflows, putting the rupee on track to record its worst fiscal year decline since 2011–12.
Concerns over high oil prices have put bonds on track for their worst fiscal year since 2023 and Indian stocks on track for their biggest monthly decline since March 2020. The fiscal year of India is from April to March.
The rupee lost gains as corporations engaged in arbitrage transactions between the onshore spot market and non-deliverable futures, despite the rupee opening much higher. The central bank tightened banks’ foreign exchange positions on Friday, creating room for such moves.
