RBI Steps Up NDF Interventions to Shield Rupee from Tariff-Driven Pressures

The Reserve Bank of India (RBI) has intensified its presence in the offshore non-deliverable forward (NDF) market to contain volatility in the rupee, which has been weighed down by tariff-related risks and imbalances in foreign exchange flows, according to bankers; Reuters reported.

Offshore Market Signals
Bankers and traders noted that RBI activity has become more visible in the NDF market in recent weeks, particularly during Indian trading hours. This suggests a more tactical approach aimed at smoothing intraday volatility rather than defending a particular exchange rate.

“Recent interventions point to a shift in strategy — the RBI is not trying to hold a hard line but is ensuring orderly conditions,” a senior treasury official at a private bank said, requesting anonymity.

Last week, the central bank is believed to have sold dollars when the rupee weakened past 88.40 against the U.S. dollar, marking a record low at 88.4550. Market participants also observed the Bank for International Settlements (BIS) on the offer side in NDF trades, a frequent proxy for central bank interventions.

Tariff Jitters Skew Flows
The rupee’s recent weakness has been exacerbated by an unusual divergence in demand-supply trends. Exporters have been reluctant to sell their dollar earnings amid expectations of further depreciation, while importers have stepped up hedging in anticipation of potential U.S. tariff moves. This imbalance has amplified offshore market pressures.

“The tariff narrative has created a skew — exporters are sitting on the sidelines while importers are rushing to cover,” said a currency trader at a Mumbai-based bank.

Balancing Strategy with Flexibility
Unlike the approach under former Governor Shaktikanta Das, when the RBI often defended psychological levels more explicitly, the current stance appears more flexible. Market watchers believe the central bank is prioritising stability over pegging the rupee to a fixed threshold, thereby conserving reserves while still curbing disorderly moves.

This calibrated strategy is also evident in volatility indicators. One-month implied volatility for the rupee has dropped to its lowest in six months, underscoring improved market confidence in the RBI’s handling of the situation.

Onshore Interventions Likely
Apart from the offshore NDF desk, bankers say the RBI has probably been active in the onshore spot market too, reinforcing its bid to smooth supply-demand mismatches. However, the RBI has not commented publicly on its actions.

Outlook
While the rupee remains vulnerable to global uncertainties and tariff-linked sentiment shifts, the RBI’s enhanced presence in both offshore and onshore markets suggests it will continue to act as a stabilising force. For now, the central bank appears committed to striking a balance — letting the currency reflect fundamentals while stepping into prevent excessive volatility