Amid the ongoing conflict between Iran and the US, global markets are in a state of turmoil. The constantly changing statements of US President Donald Trump have left the market in a state of confusion. At the slightest hint from Trump, the market crashes, and crude oil prices start skyrocketing. The selling in gold and silver is destroying the capital of investors. To take a specific example, April 2: Trump signaled that he would continue the war, and even raised the possibility of imposing new tariffs. The effect of this fear was clearly visible in the market. The Indian stock market opened with a massive fall of 1,500 points. Crude oil prices crossed the level of $106 per barrel. Gold prices fell by ₹4,000, while silver prices fell by ₹13,000. While the broader markets, stocks and gold were in decline, the Indian Rupee rose strongly. Amidst this adverse environment, this rise in rupee surprised everyone.
Rupee shines amid falling market
On Thursday, April 2, the Indian Rupee showed tremendous strength. Such a rapid rise in the rupee was seen for the first time in 12 years. With a rise of 2 per cent, the rupee touched ₹92.94 against the US dollar. After falling in the last few days, the rupee made a great comeback today. It was not just the money that shone; The broader market also made a comeback. The market, which had opened with a fall of 1,500 points, managed to make a comeback. The market comeback and the rupee appreciation were both a “masterstroke” by the RBI.
Why did the rupee appreciate?
With each passing day of the conflict, the rupee was becoming weaker against the dollar. On Thursday, the rupee opened 130 paise higher at ₹93.53. During intraday trading, the rupee gained 163 paise—its strongest single-day performance in 12 years. On March 30, the rupee had hit a low of ₹95 against the dollar. To stabilize the rupee, the Reserve Bank has taken two major decisions. The first decision is related to NOP, and the second to NDF.
How did the Reserve Bank stop the rupee from falling?
The Reserve Bank of India has barred banks from selling derivative products (specifically, non-deliverable forwards) linked to the rupee. Earlier, the RBI had also set a limit on the net open positions (NOP) of banks, which was capped at $100 million. After the RBI decision, banks are required to keep their dollar holdings within this limit till April 10. This move by RBI has resulted in reduction of market positions by about $30 to $40 billion. The reduction in banks’ dollar positions is also expected to reduce the demand for dollars. As soon as the RBI decision was announced, banks started selling their dollar holdings and converting them into rupees. Decrease in demand for dollar will increase the value of rupee, which will strengthen the currency.
Masterstroke by RBI to stop the fall of rupee
To strengthen the Indian rupee, the Reserve Bank of India has imposed new restrictions on banks and authorized dealers (ADs). The Reserve Bank has barred banks from selling non-deliverable forwards. Apart from this, it has also banned new contracts and re-booking of those contracts which were canceled earlier. ‘Non-deliverable forwards’ is a segment of the market where rupees were traded without actual physical delivery of the currency. After the RBI decision, traders are now liquidating their positions. As a result, the inflow of dollars into the market has increased. This wave of ‘panic selling’, in turn, has strengthened the rupee.
What is NDF?
NDF (Non-Deliverable Forward) is a form of currency trading that involves speculative trading between the dollar and the rupee. In this system, there is no actual physical exchange of rupees and dollars; Instead, transactions are settled based on the price difference between the two currencies.