Rupee Forward Premiums Hit Multi-Year Highs, Bankers Urge RBI Action

Indian bankers are calling on the Reserve Bank of India to intervene after a surge in dollar liquidity ahead of the year-end and pressure in the non-deliverable forward (NDF) market pushed rupee forward premiums to their highest levels in over six years. The spike intensified over the past week as excess dollars collided with regulatory and balance-sheet constraints, prompting concerns that market stress could worsen without central bank action.

The one-month dollar/rupee forward premium climbed to 55 paisa on Tuesday, more than triple its level at the end of November. Despite recent RBI intervention that helped the rupee recover from a record low earlier this month, the currency remains Asia’s worst performer this year, weighed down by weak capital inflows, steep U.S. tariffs and the absence of a U.S. trade deal. Bankers said the issue was informally raised with the RBI last week, and sources indicated the central bank is closely monitoring market conditions.

Analysts note that regulatory limits at the calendar year-end have restricted banks’ ability to park excess dollar liquidity, forcing them into dollar-rupee swaps that have driven premiums higher, especially at shorter maturities. Market participants have urged the RBI to conduct buy/sell swap auctions to drain dollar liquidity, ease pressure on swap benchmarks and smooth forward positions. Economists warn that while the RBI seeks to curb rupee volatility, expectations of further weakness persist unless broader trade and investment concerns are addressed.

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