A rally in the Indian rupee, triggered by the central bank’s curbs on speculative and arbitrage ​positions, sparked a scramble among importers to lock in dollar exposure, ‌pushing hedging costs up by the most since the 2007-2009 ​global financial crisis. One-year dollar hedging costs climbed ⁠30 basis points to 3.96 per cent on Monday, building on a 70-bp surge on Thursday - which was the biggest single-day jump since the global ‌financial crisis. Indian FX and money markets were off on Friday.

Bankers attributed the surge in hedging costs ‌to importers rushing to cover dollar payments after the RBI-triggered ‌rupee rally. ⁠Thin forward market liquidity amid uncertainty over ⁠the fallout of the RBI’s measures further amplified the move, along with a shift of offshore positions to the onshore market.

The rupee rallied nearly 2 per cent on ​Thursday to near the ‌93 to the dollar level after the RBI took steps to rein in arbitrage and speculative activity by corporates. This move came as restrictions on position sizes of banks had ‌a limited impact due to the arbitrage activity of ​corporates.

The rupee’s recovery from an all-time low of near 95 per dollar to around 93 is being ⁠seen by importers an opportunity to hedge dollar liabilities at more favourable levels. The currency’s outlook remains weak with the Iran ‌war keeping oil prices above $100 per barrel and triggering foreign outflows from equities.

The rupee’s rally “triggered a very natural behavioural response: importers rushing to hedge”, says Kunal Sodhani, head treasury at Shinhan Bank India.

“Unlike speculative flows, this (dollar) demand is sticky and one-directional, which exerts upward pressure on forward points (hedging cost).”

An FX sales head at ‌a mid-sized private sector bank said importers were locking in hedges across ​maturities and were being advised to hedge slightly beyond their underlying exposures in the wake of the RBI ⁠having disallowed rebooking of cancelled contracts.

The jump in hedging costs has ⁠caught bankers by surprise. They had expected the RBI’s curb on onshore positions to trigger an unwinding, pushing premiums ‌lower.

That the opposite is happening highlights the extent of hedging by importers, the FX sales head, who requested ​anonymity since he is not authorized to speak publicly.

Published on April 6, 2026