‘RBI should use forex stocks to prop up rupee’

New Delhi: The Reserve Bank of India (RBI) should consider deploying its foreign exchange reserves to stabilise the rupee amid volatility triggered by the West Asia crisis, according to a research report by the State Bank of India (SBI) on Monday.

The rupee breached the 95 per dollar mark during intra-day trade before settling 7 paise higher at 94.78 against the US dollar, as escalating geopolitical tensions dampened global sentiment.

SBI’s economic research department noted that India’s forex reserves—exceeding $700 billion and covering over 10 months of imports—remain robust. It said these reserves are sufficient to counter speculative pressures and that intervention, if deemed necessary, should not be reserved only for extreme situations.

The report also recommended a special window for oil marketing companies (OMCs) to separate their daily forex demand of $250–300 million from broader market activity. This, it said, would improve transparency in demand-supply dynamics and help assess the effectiveness of regulatory measures.

It flagged concerns over the RBI’s recent move to cap banks’ net open position (NOP-INR) at $100 million, effective April 10, stating it may widen the gap between onshore and offshore markets. Indian banks are typically long in onshore markets and short offshore, while foreign banks show the opposite trend.

As banks unwind positions, liquidity pressures could intensify, pushing offshore premiums higher. On Monday, one-year non-deliverable forward (NDF) premia rose to 4.19 per cent from 3.43 per cent, while one-month premia climbed to 0.67 per cent. Offshore rates were quoted at Rs 98.41.

The report suggested limiting the $100 million cap to trading books rather than entire bank books to avoid operational challenges, especially as foreign investors may withdraw funds, increasing genuine forex demand.