Rupee on a bruising ride as medium-term pressure remains severe: Anindya Banerjee

The Indian rupee is headed for a bruising ride, and the worst may not be over yet. That is the warning from Anindya Banerjee, Senior Vice President and Head of Commodity and Currency Research at Kotak Securities, who says the currency could flash-crash before a brief recovery gives way to a second, potentially more damaging leg of selling.

The trigger is a confluence of two forces hitting simultaneously: a sharp regulatory move tightening banks' net open positions in the forex market, and an energy shock of historic proportions playing out in real time at the Strait of Hormuz.

A flash crash first, then the real damage

Banerjee expects the immediate market opening to be chaotic. With it being the last working day of the financial year, corporate importers — who would normally step in as buyers — have largely completed their transactions. That leaves the Reserve Bank of India as effectively the only meaningful bidder in the market.


"It can just do a flash crash and then recover," Banerjee told ET Now.

The RBI, he explained, is likely to intervene through state-run banks to provide liquidity and arrest the freefall. The central bank also holds a significant short position in the forwards market, giving it both the incentive and the ammunition to step in early.

But the relief, he cautions, will be temporary.

Banks have until April 10 — and that is the next danger window.

The regulatory change tightening net open position limits gives banks until April 10 to unwind their excess forex positions. Banerjee warns that once the initial panic subsides and the rupee bounces, a second wave of selling could follow as banks approach that deadline.

"Once this episode passes in a couple of days, we are back on the Hormuz Strait," he said. "If oil stays where it is, we could again see the rupee heading towards 94–95 levels."

He also flagged the risk of speculative activity amplifying the moves. In past episodes of currency stress, offshore markets have tended to front-run onshore selling — a dynamic already visible in the NDF market in Singapore, where the rupee had already weakened by approximately 2% ahead of the onshore open.

The Hormuz factor: India has a price problem, Not a supply problem

On the energy side, Banerjee was blunt about the stakes. With roughly 6–7% of global energy supply currently disrupted, every additional week of closure at the Strait of Hormuz raises the risk of a full-blown global economic shock.

"If this disruption persists, it will start to actually impact the global economy — which will impact FDI flows," he said. Foreign portfolio investor outflows from India have already reached $13.5 billion, a scale last seen during the COVID-19 lockdowns of March 2020.

Brent crude was trading around $115–$116 at the time of the interview. Banerjee set a clear psychological threshold: "If we cross $120, the panic becomes even more acute globally."

He did offer one note of relative comfort for India specifically. Unlike some economies facing actual supply shortages, India's exposure is primarily to the price shock rather than availability. "That is a much better situation to be in," he said — though he was quick to add that sustained high prices would still feed directly into inflation and the current account deficit.

FCNR scheme? Not yet — but on the table

On whether India might resort to emergency measures such as a fresh FCNR (B) deposit scheme — last deployed in 2013 to stabilise the rupee during the taper tantrum — Banerjee said the country is not there yet. India's foreign exchange reserves are substantially larger today, and macroeconomic fundamentals remain more stable than in 2013.

"But if the Strait of Hormuz closure continues beyond the third week of April," he warned, "things will become seriously bad — and a lot of emergency measures could be considered."