India Bans Offshore Rupee Trading, Roiling $149 Billion Market

The Reserve Bank of India's move to curb non-deliverable forward contracts could squeeze a massive offshore rupee trading market.

Apr. 2, 2026 at 9:57am

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India has barred its banks from offering the most widely used instrument for trading the rupee offshore, a move that could squeeze a $149 billion-a-day market. The Reserve Bank of India's restrictions on non-deliverable derivative contracts are set to ripple through major currency hubs like Singapore and London, where trading volumes have expanded over the past decade to roughly twice the size of the onshore market. The policy follows other measures aimed at supporting the weakening rupee, which has declined about 8% over the past year.

Why it matters

The RBI's aggressive steps to curb offshore rupee trading and speculation could undermine years of efforts to deepen India's currency markets, which have helped attract foreign investors and support the government's push to expand the rupee's global use. However, the central bank is prioritizing currency stability over liquidity, as it seeks to contain imported inflation driven by soaring energy prices.

The details

The RBI is targeting the non-deliverable forward (NDF) market, where investors have typically used offshore contracts to build short rupee positions, while banks have run arbitrage trades to profit from price gaps between onshore and offshore markets. These onshore dollar purchases can add pressure on the local currency, reinforcing bearish offshore bets. The central bank's measures amount to a coordinated push to flush out excess bearish rupee positions and speculative trades, which may come at the cost of reduced liquidity and wider spreads between onshore and offshore markets.

  • On Monday, index-eligible bonds saw outflows of ₹32.85 billion ($352 million), the largest single-day exit in 10 months.
  • The RBI is scheduled to announce its next rate decision on April 8.

The players

Reserve Bank of India

India's central bank, which has implemented a series of measures to support the weakening rupee, including restrictions on non-deliverable derivative contracts and capping lenders' daily currency positions.

JPMorgan Chase

One of the international lenders that has dominated the offshore rupee trading space, along with other global banks like Standard Chartered, HSBC, and Citigroup.

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What they’re saying

“This is again a signal that the central bank is willing to consider harsh steps that are nevertheless regressive and that its focus is on the stability of the rupee rather than liquidity for now.”

— Abhishek Upadhyay, Economist at ICICI Securities Primary Dealership

“The FX market is to function as a hedging mechanism aligned with real economic activity, not as a platform for leveraged speculation.”

— Kunal Sodhani, Head of Treasury at Shinhan Bank in Mumbai

What’s next

The RBI is scheduled to announce its next rate decision on April 8, where it will have to balance its focus on inflation management with the need to support the weakening rupee.

The takeaway

India's aggressive measures to curb offshore rupee trading and speculation could help stabilize the currency in the short term, but risk undermining the long-term development of its currency markets and deterring foreign investment. The RBI faces a delicate balancing act as it seeks to contain imported inflation without stifling economic growth.