INR: RBI Clamps down on NDFs as structural headwinds persist – Societe Generale

Societe Generale analysts note the RBI has barred banks from offering INR NDFs to residents and non-residents to curb speculation, but they argue Rupee headwinds remain structural, tied to FPI outflows, Oil shock dynamics and slowing domestic growth, with 10-year yields seen heading toward 7.20–7.25%.

RBI measures seen as band-aid on deeper issues

"The RBI unveiled additional steps to rein in speculative trading against the currency, barring banks from offering INR NDFs to both resident and non-resident clients, a technical band-aid in our view."

"The headwinds for the rupee remain structural and tied to persistent FPI outflows, oil-shock dynamics and slowing domestic growth rather than speculation alone."

"Bonds also resumed their slide with the 10y IGB yield creeping 3bp higher to 7.07%. Local traders are positioning for yields to extend the move toward 7.20–7.25%, reflecting fading FPI appetite."

"The numbers for FY26 underline the shift: FPI demand for FAR‑route government bonds collapsed to just ₹35.46bn ($380m) versus ₹2.31tn ($24.7bn) in FY25, when index inclusion drove heavy front‑loading. March alone saw ₹176.86bn ($1.9bn) of FPI debt outflows as oil‑shock fears revived concerns over fiscal slippage and further narrowed the IGB‑UST spread."

"While the RBI has already moved to curb speculative FX positioning by banks and FIs, markets are increasingly wary that the central bank may pivot to a more hawkish posture as early as next week, with the Middle East conflict forcing a reassessment of policy risks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)