Indian Rupee Forwards Hit Highest Levels Since January

Mumbai, December 4, 2025 – The Indian rupee’s forward premiums soared to their highest levels since January, extending a recent rally fueled by waning bets on a Reserve Bank of India (RBI) rate cut and a sharp decline in the spot rupee. Traders cited thin market liquidity and stop-loss triggers as key factors amplifying the surge in forward premiums.

The implied yield on the 1-year USD/INR forward premium climbed 16 basis points to 2.64%, marking a total rise of over 30 basis points in just three trading sessions.

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Spot Rupee Weakness Drives Forward Premiums Higher

The rupee has experienced a rapid slide, breaking through a long-held support level of 88.80 and crossing the psychological 90 mark on Wednesday. On Thursday, the currency fell further to a lifetime low of 90.40, prompting importers to increase hedging activity, which in turn added upward pressure on near-term forward premiums.

Bankers attributed the surge to multiple factors:

• Crumbled expectations of a 25-basis-point RBI rate cut at the upcoming policy meeting
• Currency depreciation, prompting stop-loss triggers and position adjustments
• Liquidity constraints, amplifying the impact of market moves

The overnight swap market now implies negligible odds of a rate cut, a sharp reversal from market expectations held prior to the rupee’s sharp slide and India’s strong September-quarter GDP data.

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Positioning and Liquidity Exacerbate Market Moves

Market participants who had anticipated a rate cut were forced to unwind their positions, adding further pressure to forward premiums. Traders emphasized that with liquidity running below normal levels, even minor moves were magnified in the forward market.

One trader noted, “For far forwards, a large part of the move is position-cutting, and with liquidity running below normal, the moves are being exacerbated.”

The surge in forward premiums reflects not only current currency weakness but also the market’s recalibration of expectations ahead of the RBI’s upcoming policy decision.

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Implications for Investors and Importers

The recent developments highlight critical considerations for investors and corporate importers:

• Hedging strategies may need adjustment as the forward market reflects higher costs for USD/INR contracts
• Expectations for RBI monetary policy have shifted, impacting interest rate-sensitive investments
• Import costs could increase if the rupee continues to weaken, especially for businesses reliant on dollar-denominated imports

Analysts advise monitoring forward premiums and spot rupee trends closely, as liquidity conditions and RBI policy announcements are likely to continue influencing market dynamics in the near term.

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Conclusion

The Indian rupee forward market is under intense pressure as the likelihood of a rate cut diminishes and spot currency weakness triggers stop-losses in a liquidity-starved environment. Investors, importers, and traders should prepare for continued volatility in USD/INR forwards, while closely tracking RBI policy signals and broader macroeconomic trends in India.