The Reserve Bank of India (RBI) is taking strict measures to stop the fall in the rupee against the dollar. In this episode, RBI has asked local banks not to create additional positions in the overseas non-deliverable segment (NDF segment). This is putting more pressure on the Indian rupee against the dollar.
Talking to the news agency Reuters on this matter, a banker said that due to the creation of additional positions in the NDF market by the banks, the RBI is spending more foreign exchange reserves to handle the depreciation of the rupee against the dollar.
This order has been given by RBI in an informal communication to the banks. Let us tell you, earlier in June 2020, after research, RBI had asked local banks to trade in the NDF market occupied by foreign banks. Trading in this gives RBI more control in the NDF market.
Due to Indian banks trading in the NDF market, the demand for the dollar increases, and the volatility of the rupee against the dollar also increases. This puts pressure on the rupee against the dollar.
The rupee has seen a sharp decline in the last few months against the dollar due to the Russo-Ukraine war and rising interest rates in the US. The dollar index, which shows the strength of the dollar, is running at a high of 113 for almost 20 years. Due to this, since the beginning of 2022, the Indian rupee has fallen by about 10 percent against the dollar at the level of 82.30.