India’s currency markets are entering a crucial phase, with India’s rupee defense mechanism faces fresh strain as $7 billion in NDF contracts near maturity becoming a growing concern among bankers and analysts. As billions of dollars in non-deliverable forward (NDF) contracts approach expiry, the Reserve Bank of India (RBI) may find itself navigating renewed volatility in the foreign exchange market.
How the RBI Uses the NDF Market
In recent months, the RBI has leaned heavily on the offshore non-deliverable forward market to contain swings in the rupee. By selling dollar/rupee forward contracts in the NDF segment, the central bank has been able to stabilize the currency without immediately drawing down foreign exchange reserves or tightening domestic liquidity.
This approach allows the RBI to manage short-term volatility discreetly. However, the strategy comes with a catch: once these contracts—typically ranging from one to three months—mature, counterparties may need to buy dollars in the spot market to settle their positions. That sudden demand can place fresh downward pressure on the rupee.
According to market participants, contracts worth at least $7 billion are set to mature this week alone, with additional maturities lined up in the coming weeks.
Maturity Pressure Could Linger
Bankers tracking the situation suggest that unless the RBI rolls over these contracts, the rupee could face renewed depreciation pressure. The central bank’s forward book has expanded significantly, and the rollover cycle may extend the strain into the coming months.
Dhiraj Nim, an economist at ANZ, noted that forward book maturities are likely to weigh on the currency in the near term. He added that modest foreign portfolio inflows and concerns about India’s current account position could compound the issue, potentially leading to gradual weakening in the spot rupee.
March is expected to see elevated maturities as well, partly reflecting the RBI’s efforts in recent sessions to prevent the rupee from breaching the 91-per-dollar level.
The Size of the Forward Book
Official data highlights the scale of the central bank’s exposure. As of December 31, outstanding forward contracts included:
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Over $20 billion in the up-to-one-month category
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$5.9 billion in one-to-three-month tenors
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$4.3 billion in contracts ranging from three months to one year
When combined with onshore forward interventions, the RBI’s short foreign exchange forward book stood at $62.3 billion at the end of the year.
Analysts have long cautioned that such a large forward position—spanning both NDF and domestic forward markets—can become a double-edged sword. During periods of capital inflows and favorable conditions, it may lead to the rupee underperforming other Asian currencies. In less supportive environments, it can intensify depreciation pressure when contracts mature.
The RBI has not issued an immediate response to concerns that its NDF strategy could contribute to recurring maturity-driven volatility.
A Recurring Cycle of Intervention
The rupee has been under sustained pressure for several months, interrupted only by brief spells of stability. In 2025, it has declined roughly 5%, placing it among the weaker-performing Asian currencies.
To prevent sharper depreciation, the RBI has frequently intervened through both direct dollar sales and forward market operations. But each new round of forward intervention adds to the stock of contracts that will eventually mature, reinforcing a rolling cycle.
This dynamic means that today’s support measures could translate into tomorrow’s market stress unless carefully managed.
Breaking the Cycle
Market participants argue that a durable improvement in capital inflows could ease the situation. Stronger foreign portfolio investment or broader capital inflows would give the RBI room to unwind some of its forward positions without destabilizing the market.
If inflows improve, the central bank could gradually reduce outstanding forward exposures, lowering the rollover burden and helping stabilize the rupee over the medium term.
For now, however, traders remain cautious. With significant maturities looming and external factors still uncertain, India’s rupee defense mechanism faces fresh strain as $7 billion in NDF contracts near maturity is more than just a headline—it reflects the delicate balancing act facing India’s monetary authorities in the weeks ahead.
