Dollar/Rupee Premium Rises as Importer Demand Builds, Policy View Shifts

The dollar/rupee forward premium moved sharply higher on Thursday as importers accelerated hedging, and market participants shifted their interest-rate expectations in India and the US. The one-year premium increased to 2.65% from 2.53% on Wednesday, reflecting stronger demand for forward dollars and a revised view of the Reserve Bank of India’s likely policy path.

In last one month, the forward premium have risen around 35 basis points, of which 30 bps jump came since Friday’s GDP data.

The rupee’s breach of the ₹90-per-dollar level on Wednesday prompted extensive dollar buying by importers, who moved to secure near-term payment cover amid limited spot intervention by the central bank. The absence of the Reserve Bank of India in the spot market reinforced the perception that the currency could weaken further, encouraging more participants to lock in forward contracts.

On Thursday, the rupee slipped to a fresh low of ₹90.43 per dollar, leaving it down 5.4% in the current calendar year.

The RBI’s positioning in the forward market added another layer to the price action. The central bank remains short about $63 billion in forward contracts and typically adds to this position as the rupee weakens. This structure limits its ability to intervene through the spot market without tightening rupee liquidity, which the central bank seeks to avoid. Forward operations therefore remain its main tool for managing volatility, indirectly influencing the premium through supply dynamics.

Interest-rate expectations were another significant driver. Softer US jobs data this week strengthened the case for a Federal Reserve rate cut at the upcoming meeting, widening the potential interest-rate gap between India and the US. In contrast, India’s robust GDP data and the rupee’s recent weakness have reduced expectations of a Reserve Bank of India rate cut on Friday. The prospect of a wider policy-rate differential supports higher forward premia, as markets begin pricing in steadier domestic rates alongside lower US yields.

Dealers noted that if expectations for a sustained interest-rate gap strengthen, forward premia could rise further.

For now, the forward market reflects a mix of importer hedging, constrained central-bank spot intervention, and shifting views on the relative policy stance of the Federal Reserve and the Reserve Bank of India.