Rupee Logs Best Day in Three Weeks After RBI NDF Sales Squeeze Shorts

The rupee closed at 94.96 against the dollar on Monday, its strongest single-day gain in three weeks. State-run banks sold dollars in the non-deliverable forwards (NDF) market, three dealers said, in what traders described as intervention by the Reserve Bank of India. The move bailed out short-dollar positions that had built up after weeks of rupee depreciation.

Dealers said the NDF sales created a sudden supply of dollars offshore, forcing a squeeze on short positions. The rupee had been sliding for most of the month, pressured by broad dollar strength and capital outflows. Monday's rally broke the streak, at least for a session.

The RBI has historically used NDF sales to manage rupee depreciation without draining its spot reserves. By selling dollars in the NDF market and simultaneously buying them in the spot market via sell-buy swaps, the central bank can absorb rupee liquidity while limiting the impact on its reserve buffer. Traders said Monday's intervention followed a similar pattern, though they cautioned that the rupee's relief may be short-lived.

One Mumbai-based dealer said the volume of NDF dollar sales was significant enough to push the spot rupee higher. The direction of the next move depends on the RBI's willingness to keep intervening, the dealer said. "If the RBI stays in the market, the rupee could hold these levels. If not, the dollar demand from importers will bring it back."

The dollar index was little changed on the day, meaning the rupee's gain was not driven by a weaker greenback. That reinforces the narrative that the move was intervention-led, traders said.