Persistent global pressures and continued capital outflows pushed the Indian currency to an unprecedented level on Monday, underscoring mounting stress in the foreign exchange market despite regulatory intervention by the Reserve Bank of India.

Rupee weakened past the 95 mark against the US dollar for the first time on Monday (March 30), hitting a record low despite recent steps taken by the Reserve Bank of India (RBI) to curb volatility.

The currency fell to 95.20 per dollar, down 0.3% during the day, as pressure continued to build from global factors and sustained foreign outflows.

The RBI’s move to tighten limits on banks’ foreign exchange positions offered only brief support to the rupee, with analysts saying that underlying factors remain unfavourable for the currency.

Late on Friday, the RBI directed banks to cap their net open rupee positions in the foreign exchange market at $100 million by the end of each business day. Banks have been asked to comply with this rule by April 10.

The move is aimed at reducing speculative positions and limiting volatility in the currency market. Following the directive, banks are expected to sell dollars in the domestic market as they unwind existing arbitrage trades.

These trades involved buying dollars in the onshore market and selling them in the non-deliverable forward (NDF) market to take advantage of price differences between the two segments.

The spread between the onshore and NDF markets had widened sharply in recent weeks due to rising volatility, driven by risk aversion and higher oil prices linked to the Iran war. The size of these arbitrage positions is estimated to be between $25 billion and $50 billion.

Market participants believe that while regulatory tightening may ease short-term fluctuations, the rupee’s trajectory will continue to depend on global risk sentiment, energy prices and the pace of foreign investment flows into Indian financial markets.