India’s currency market closed the financial year under pressure, with the rupee flirting with the 95-per-dollar mark amid persistent global and domestic headwinds. Despite a brief policy-driven rally, the underlying weakness resurfaced, while bond yields hardened sharply, signalling tighter financial conditions.
The rupee witnessed sharp swings on the final trading day of FY26 on Monday. After opening stronger and rising over 1 percent to around 93.5 per dollar—helped by the Reserve Bank of India’s move to curb speculative positions—the momentum quickly faded.
Intraday low: 95.24 per dollar
Closing level: 94.81 per dollar
Largely unchanged from previous close
Importer demand for dollars, coupled with corporate arbitrage between onshore and offshore markets, dragged the currency lower as the day progressed.
The RBI’s decision to cap banks’ net open dollar positions initially triggered aggressive dollar selling, lifting the rupee in early trade. However, the relief proved short-lived.
Banks rushed to unwind positions, creating temporary dollar supply
Arbitrage trades between spot and non-deliverable forward (NDF) markets widened spreads
Forward premiums surged as demand for hedging rose
The one-year forward premium climbed to about 2.9 percent from around 2 percent a week earlier, reflecting heightened demand for protection against further depreciation.
FY26 turned out to be the rupee’s weakest performance since FY12.
Annual fall: 9.85 percent
March decline: 4.04 percent (steepest since 2020)
Among the worst-performing Asian currencies
The rupee crossed 90 per dollar in early December and breached 95 in less than four months, underscoring the pace of depreciation.
Multiple factors continue to weigh on the rupee:
Elevated crude oil prices increasing import bills
Persistent foreign portfolio outflows from equities and debt
Strength in the dollar index
Geopolitical tensions in West Asia
These structural pressures offset the impact of policy measures and intermittent RBI intervention.
Government bond yields mirrored the stress in currency markets, rising sharply during the session.
10-year benchmark yield: 7.04 percent (highest since July 2024)
Previous close: 6.94 percent
Selling by foreign banks and a rise in overnight indexed swap (OIS) rates drove yields higher.
One-year OIS: 6.24 percent (vs 6.04 percent)
Five-year OIS: 6.80 percent (vs 6.63 percent)
The uptick reflects a broader risk-off sentiment and expectations of tighter liquidity conditions.
While the government maintains that India’s macro fundamentals remain strong, near-term currency stability will depend on easing oil prices, revival in capital inflows, and sustained policy support.
For now, both the rupee and bond markets appear vulnerable to global shocks, with volatility likely to persist into the new financial year.
