Rupee hits 94: Abhishek Goenka on $30 billion relief that could keep currency under pressure for days

The rupee’s dramatic slide against the dollar on Tuesday from 94 was not just a reaction to global risk-off sentiment. Behind the scenes, significant regulatory intervention by the Reserve Bank of India has forced a large and chaotic unwinding of bank positions – and according to one of India’s most experienced currency strategists, the market may not find its feet for several more days.

Abhishek Goenka, founder of IFA Global, who has tracked the rupee through multiple crises in a 25-year career, told ET Now that the RBI has effectively done away with traditional tools and is now deploying more robust measures to rein in arbitrage trades spread between India’s onshore non-shore forward market and offshore non-spot market.

Arbitrage trades that trigger crackdowns

For weeks, Indian banks had been building positions that used the price differential between the rupee and the NDF market in Singapore. The RBI, which had already accumulated a short dollar position of close to $100 billion through aggressive market intervention, identified these deals as unsustainable and moved to limit each bank’s net open position to $100 million.

The immediate aftermath was brutal. Banks were forced to sell dollars in the spot market as well as buy in the forward market—which was initially violently unidirectional. The spread between the one-year NDF and the onshore forward rate widened to nearly a rupee, a disparity Goenka said has not been seen since the Covid-19 crisis of 2020.

“Whenever RBI falls short of easy steps, they all come together,” Goenka said. “They are talking to many authorized dealer banks, checking their status and finally taking action.”

This rest will take days, not hours

With approximately $30 billion of positions in both the spot and NDF markets needing to be sorted out, Goenka insists that the adjustment cannot be narrowed down in a single trading session. The requisite amount of liquidity makes a multi-day rest inevitable — and the timing is complicated by the fact that March 31 marks the end of the fiscal year, leaving less active corporate participants in the market to provide natural counter-liquidity.

The RBI, through state-owned banks, is expected to remain the dominant buyer, effectively setting the framework for where the rupee will stabilize in the near term.

Two strangers who can make everything worse

Beyond the mechanical comfort, Goenka flagged two variables that remain completely outside the RBI’s control and could well extend the rupee’s weakness on the back of the current episode.

The first is the path of West Asia conflict. At the time of the interview, Goenka noted that neither party was backing down, keeping energy prices elevated and risk sentiment tenuous. Second is the US Federal Reserve. Unless the Fed starts cutting interest rates, the interest rate differential between India and the United States remains wide – maintaining structural pressure on the rupee regardless of RBI action.

The Historical Playbook — And What It Means Now

Goenka drew on the previous two-rupee crisis to frame the medium-term outlook. In 2013, the currency went from 56-57 all the way to 68 in four months and to 59 within a month. In 2008, it changed from 39 to 52. In both cases, the final mean reversion was sharp.

His base case is that the rupee depreciates by about 10% through this cycle – consistent with its long-term average annual depreciation of 2.5-3% during periods of stress. At current levels, coupled with an elevated forward premium and an even higher NDF premium, he argued that dollar selling now poses limited downside risk over the medium to long-term horizon.

“I don’t think you’re going to lose if you sell the dollar at current levels,” he said.