USD Vs INR: 5 tools that are at RBI’s disposal to check rupee slide

The Reserve Bank of India (RBI) jolted currency markets last week by barring banks from offering rupee non-deliverable forwards (NDFs), an offshore rupee trading instrument, sending the domestic unit to its biggest gains since 2013.

The move, targeting the $149 billion-a-day NDFs market, signals a more forceful push after last week’s step of capping onshore positions at $100 million a day brought minor relief for the battered rupee. Further steps may follow, possibly even before the RBI’s 8 April rate decision. Here are some measures the central bank could consider.

Special oil window

One immediate option is to open a dedicated dollar swap window for oil refiners, who account for $250–300 million in daily demand. By supplying dollars directly from its own balance sheet, the RBI could remove a key source of demand from the market and offer quick support to the rupee. These swaps can be unwound later. It is a playbook the RBI used during the 2013 taper tantrum, when it supplied about $12 billion to refiners.

Stepped-up intervention

The RBI can also ramp up direct market intervention. With forex reserves of about $700 billion, it has room to sell dollars and buy rupees to curb volatility. To avoid tightening liquidity too much, the central bank can offset the impact through bond purchases.

FIMA backstop

If stress deepens, the Indian regulator could tap the US Federal Reserve’s Foreign and International Monetary Authorities (FIMA) repo facility by pledging part of its $190 billion in Treasury holdings.

This would allow the RBI to access dollars through overnight repo operations, which can then be rolled over for seven days. The RBI could then supply dollars domestically via short-term swaps aligned with the FIMA tenor.

NRI deposits

Another route is to raise dollar funds from non-resident Indians by offering attractive rates. In 2013, the RBI garnered $30 billion through such deposits at around 3.5%. This option looks expensive now. US interest rates are much higher than they were back then. Add in elevated global yields and hedging costs, and this option is prohibitively costly for the RBI.

CRR increase

The central bank could raise the cost of funds for banks temporarily by draining liquidity via a higher cash reserve ratio (CRR).