The Reserve Bank of India should use foreign exchange reserves to support the rupee affected by the West Asia crisis. This has been said in a report of SBI Research released on Monday. Global markets have been adversely affected by increasing conflict in West Asia. This has increased the volatility of the rupee and created a risk averse attitude. Amidst all this, the rupee crossed the level of 95 against the dollar during trading on Monday. Finally it closed at 94.70 with an increase of 15 paise against the American currency. Let us also tell you what kind of advice has been given to RBI in the report of the country’s largest government bank to save the rupee against the dollar.
RBI should use forex reserves
The report of the Economic Research Department of the State Bank of India states that India has enough foreign exchange reserves equal to more than 10 months of imports. These figures are very satisfactory in any respect. The report said that we believe that the foreign exchange reserves of more than $ 700 billion are strong enough to prevent speculative activities to support the rupee by intervening in the foreign exchange market. It also said that there is no reason why we should use foreign exchange reserves only for emergency situations, as has been said so far. We believe there is still time to intervene in the market to support the rupee if necessary.
Spacing arrangement for OMC
According to the report, petroleum marketing companies (OMCs) should be provided a special arrangement by the regulator to decouple their daily demand (about $25-300 million) from market functioning. With this, the demand can be reduced by 75 to 80 billion dollars on annual basis. This will help in better understanding the actual demand and supply dynamics of foreign exchange and assess the impact of various measures initiated by the regulator to prevent unnecessary volatility.
RBI should rationalize open positions
The SBI report further said that the RBI’s attempt to rationalize ‘open positions’ for banks, though beneficial, is likely to create a larger gap between ‘onshore’ (domestic) and ‘offshore’ (overseas) markets. The report notes that Indian banks—be they public or private—are generally ‘long’ (in the buying position) ‘onshore’ and ‘short’ (in the selling position) ‘offshore’, while the opposite trend is seen in foreign banks.
As banks try to unwind their positions, a cash crunch is likely to emerge, leading to a vicious cycle that could see ‘offshore premiums’ rise sharply. Due to this, there was a jump in the 1-year NDF (Non-Deliverable Forward) premium on Monday and it increased from 3.43 percent to 4.19 percent. At the same time, 1 month premium increased from 0.33 percent to 0.67 percent, and NDF/offshore rates were running at Rs 98.41.
There should be a limit of Rs 100 million on the entire book of banks.
The report said that we believe that the $100 million limit should be applied only to the ‘trading book’ and not to the entire book of the bank, as this creates operational challenges. This is also necessary because in the current situation, many FPIs (Foreign Portfolio Investors) and some FDI (Foreign Direct Investment) investors will be withdrawing their money (for redistribution/profit making), and they will place their genuine demands before the banks, which the banks will have to fulfill on the basis of ‘order-matching’. Through its circular issued on March 27, 2026, RBI had fixed the ‘net’ (net) limit. USD 100 million open position (NOP-INR) for banks, which requires compliance by April 10.