RBI’s Forward Market Strategy May Add Pressure on Rupee as $7 Billion Contracts Mature

The Reserve Bank of India’s use of the non-deliverable forward (NDF) market to curb rupee volatility may weigh on the currency in the near term, with contracts worth at least $7 billion set to mature this week and additional maturities expected in the coming weeks, according to bankers. By selling dollar/rupee forwards in the NDF market, the central bank can support the rupee without immediately depleting foreign exchange reserves or tightening domestic liquidity. However, when these short-term contracts—typically ranging from one to three months—expire, counterparties may need to purchase dollars in the spot market, potentially putting downward pressure on the rupee unless the contracts are rolled over.

Analysts warn that this maturity cycle could sustain pressure for months, particularly amid weak foreign portfolio inflows and concerns over India’s current account position. “The pressure on account of forward book maturities could persist for the next couple of months,” said Dhiraj Nim, economist at ANZ, adding that these factors together may lead to gradual depreciation of the currency. Central bank data as of December 31 showed outstanding forward contracts exceeding $20 billion in the up-to-one-month tenor, $5.9 billion for one to three months, and $4.3 billion for three months to one year, underscoring the scale of potential market impact.

The rupee has remained broadly under strain in recent months, falling about 5% in 2025 and ranking among Asia’s weakest currencies, prompting frequent RBI intervention through both direct dollar sales and forward operations. As of end-December, the central bank’s short foreign exchange forward book stood at $62.3 billion. Each intervention adds to future maturities, creating a recurring cycle in which support today can translate into pressure later. Bankers say a sustained revival in capital inflows could help break this pattern by enabling the RBI to reduce outstanding forward positions and ease the rollover burden on the currency.

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