Stories
Rupee Forward Gap Narrows After Spike While Offshore Premium Stays Elevated
- •The one-month dollar/rupee forward premium jumped to around 50 paise on October 8 before narrowing to 15-20 paise as the spot rupee weakened.
- •Bloomberg's offshore measure showed one-month NDF points at 45.01 paise on October 9, remaining well above the 12-month average of 28.99 paise.
- •The Reserve Bank of India raised the repo rate by 25 basis points to 5.50 percent on October 7, reinforcing expectations of tighter liquidity conditions.
- •Foreign institutional investors net sold Rs 12,944 crore in the cash market on October 8, marking the second-largest daily FII sale of 2026.
- •Analysts note that the narrowing spot-forward gap eases immediate hedging costs, but does not signal an all-clear for the rupee.
Key Questions Answered
The one-month dollar/rupee forward premium jumped to around 50 paise on October 8 before narrowing to 15-20 paise as the spot rupee weakened. This retreat happened partly because the spot exchange rate moved closer to the earlier forward rate rather than a sudden shift in trader confidence.
The RBI raised the repo rate by 25 basis points to 5.50% on October 7, its first hike in nearly four years, to reinforce tighter liquidity conditions. Additionally, the central bank has used sell/buy dollar swaps to drain surplus banking-system liquidity, which can push up forward premiums.
Foreign institutional investors net sold Rs 12,944 crore of Indian equities in the cash market on October 8 as the rupee weakened. This marked the second-largest daily FII sale of 2026, following a sale of Rs 21,106 crore on May 29.
