India's banks have largely unwound rupee arbitrage positions ahead of the Reserve Bank of India's April 10 deadline. The central bank imposed a $100 million cap on net onshore positions in late March to control currency volatility and reduce downward pressure on the rupee. These arbitrage trades, estimated at roughly $40 billion, were exploiting price differences between onshore and non-deliverable forward markets. Market data suggests most unwinding is complete, with banks executing approximately $36 billion in NDF trades from April 1 to 7. The rupee weakened to 92.77 per dollar Thursday while forward premiums climbed, indicating positions have been largely exited. RBI officials noted these arbitrage activities were contributing to heightened FX volatility, prompting the regulatory intervention.
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