Context:
Rupee fell 50 paise (0.57%) to ₹87.21/USD, its biggest fall in three and more weeks. Year to date in FY25, the rupee has depreciated 4.31%; in 2025 alone, it has declined 1.81% against the dollar.
Key Highlights:
- The Reserve Bank of India settled offshore forward contracts worth $5-6 billion, thus exerting pressure on the currency.
- Breakdown Futures expiry: $2.6 billion; rest in the NDF market.
- According to market experts, a sharper decline was triggered by stop loss orders because of RBI’s reluctance to roll over such contracts.
Limited RBI Intervention Exerts Further Pressure
- For past weeks, INR remained stable owing to RBI’s intervention on February 10-11 during which it sold $12-$14 billion in the spot market.
- Moreover, the central bank refrained from intervening, which contributed to the rupee’s further weakening.
Animation of RBI Forward Book
- RBI net short position in the forward market was $67.9 billion as of December 2024.
- The forward book saw a massive surge in a couple of months
- Exports in September $15 billion.
- Exports in October $49 billion.
- Exports in November $59 billion.
- $80-85 billion was the estimate towards the end of January.
Importers and Hedging Activity Drive Increased Dollar Demand
- Increased dollar demand from importers weakened the rupee further.
- Such increased hedging activity is only expected to build pressure as conjecture around the RBI rolling these contracts increases.
Movement of Other Currencies in the Region
- The rupee was the worst performing currency among Asian peers on Tuesday with the Thai baht down by 0.60% against the dollar.
- The February depreciation of the rupee at 0.68% exhibits consistent depreciation pressure.
With the expiry of offshore contracts and dollar demand from imports remaining, the rupee’s near term movement is expected to depend on the RBI’s intervention strategy and global market sentiments.
