Indian Rupee Dips Amid Rising Hedging Demand Despite Softer Dollar; Forward Premiums Surge to Multi-Year Highs
Mumbai, Dec 23, 2025 — The Indian rupee experienced a slight weakening on Tuesday, declining to 89.7150 against the U.S. dollar by 11:00 a.m. IST, down marginally from its previous close of 89.65. This decline came despite a broadly softer U.S. dollar, highlighting sustained corporate demand for dollars that outweighed the modest weakening in the greenback.
Persistent Corporate Dollar Demand Offsets Softer Dollar Index
Traders attributed the rupee’s dip primarily to elevated demand from importers and corporate entities seeking to purchase dollars at the daily reference rate. While the spot foreign exchange market remained relatively rangebound, the underlying pressure from hedging needs continued to influence the currency dynamics.
Meanwhile, the U.S. dollar index slipped by 0.2% to 98.03, and Asian currencies showed a mixed performance, suggesting nuanced regional currency trends. India’s major equity indices—the BSE Sensex and Nifty 50—also remained largely unchanged, reflecting cautious investor sentiment accompanying the currency movements.
Forward Premiums Climb to Multi-Year Peaks
Beyond spot transactions, the forward premium on the dollar-rupee pair surged sharply, signaling increased costs for hedging currency exposure. The 1-month dollar-rupee forward premium rose by more than 55 paise, while the one-year implied yield touched a more than three-year high of 3.29%. Such elevated forward premiums reflect concerns within banks over excess dollar liquidity circulating in the domestic banking system and sustained dollar purchasing activity within the non-deliverable forward (NDF) market.
Two market participants noted that state-run banks have been receiving premiums on far-dated tenors, likely on behalf of the Reserve Bank of India (RBI), which has helped moderate the pace of the forward premium hike.
Implications for Importers and Exporters
The escalating forward premiums have mixed implications. For importers, higher premiums translate into costlier hedging, potentially increasing import bills if they choose to lock in rates. Conversely, the rising premiums could make hedging more attractive for exporters seeking to protect their foreign currency earnings.
FX advisory firm Finrex Treasury Advisors advised exporters to consider hedging only when the rupee-dollar rate reaches 90 or higher, while suggesting spot sales at peaks around 89.75 during the trading day. Anil Bhansali, head of treasury at Finrex, recommended that importers “buy the dip and wait for RBI intervention in the market through dollar sales,” anticipating regulatory actions to stabilize the currency.
Outlook
As hedging demand remains strong, the rupee could continue to face pressure despite intermittent softness in the U.S. dollar. Market participants will closely watch RBI’s stance and interventions to gauge the trajectory of the domestic currency and forward premiums in the weeks ahead.
Reporting by Jaspreet Kalra; Editing by Ronojoy Mazumdar
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