New Delhi, March 30 The Reserve Bank should use foreign exchange reserves to stabilize the rupee, which has been affected by the ongoing crisis in the Middle East, according to a research report by SBI on Monday.
The rupee breached the 95/USD mark on Monday and closed 7 paise higher at 94.78 (provisional) against the US currency after the escalation of the Iran war jolted global markets, fueling volatility and risk-off sentiment in the rupee.
The research report from the State Bank of India's economic research department said that India has adequate foreign exchange reserves of more than 10 months of imports. These figures are significantly comfortable, regardless of any scenario.
"The USD 700 billion plus external reserves, we believe, are strong enough to deter speculative moves by intervening in the foreign exchange market to stabilize the rupee.
"There is no reason to believe that we should only use FX reserves for emergencies, as previously mentioned, and we believe there is still time to intervene in the market to stabilize the rupee if that is desired," the report said.
It also said that oil marketing companies (OMCs) need a special window from the regulator that separates their daily demand (around USD 250-300 million) from the market needs (annual demand of USD 75-80 billion).
This would provide better visibility on the genuine demand and supply dynamics and in measuring the effectiveness of various measures taken by the regulator to curb unwarranted volatility, it added.
The SBI report further said that the attempt by the RBI to rationalize the open positions for banks, though useful, is likely to have created a significant divergence between the onshore and offshore markets.
Indian banks, both public and private, are generally long on the onshore market and short on the offshore market, while foreign banks exhibit a contrasting trend.
As banks attempt to unwind their positions, liquidity shortages are likely to emerge, creating a vicious cycle where offshore premiums could witness a sharp rise.
Therefore, the NDF (non-deliverable forward) premium for 1 year rose to 4.19 per cent (from 3.43 per cent) on Monday, while the 1-month premium increased from 0.33 per cent to 0.67 per cent, and the NDF/Offshore rates were quoted at Rs 98.41.
"...we believe that the USD 100 million limit should be imposed only on the trading book, and not on the entire bank book, as it creates operational challenges," the report said.
This is also important as many FPIs and some FDI players would be withdrawing their funds in the current situation (reallocation/profit booking) and would be placing genuine demands on banks to fulfill on an order-matching basis, it added.
Through its circular dated March 27, 2026, the RBI capped the Net Open Position (NOP-INR) for banks at USD 100 million, with compliance required by April 10.
Disclaimer: Due care and diligence have been taken in compiling and presenting news and market-related content. However, errors or omissions may arise despite such efforts.
The information provided is for general informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Readers are advised to rely on their own assessment and judgment and consult appropriate financial advisers, if required, before taking any investment-related decisions.