Outstanding positions in India’s dollar–rupee futures contract that expires next week have soared to more than US$3.7 billion—over three times the level seen just two weeks ago, marking the highest open interest in more than a year, bankers told. This surge is widely attributed to arbitrage operations and likely intervention by the Reserve Bank of India.
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## What’s fueling the jump in open interest?
Traders say the spike reflects a resurgence of arbitrage trades—transactions that exploit pricing gaps between different market segments. These have reemerged in the relatively underused rupee futures market, particularly between the National Stock Exchange futures and the non-deliverable forward (NDF) market.
Some lenders are leveraging these differences to capture small profits. Three unnamed bankers confirmed taking such positions anonymously. “This massive surge in market participation was after August 5, when the spread between the near-month future and the one-month forward began to expand,” noted Dilip Parmar, currency research analyst at HDFC Securities.
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## RBI’s role: Intervention and regulations
Back in March, the RBI imposed limits on banks’ net open foreign exchange positions in the deliverable rupee market. The aim was to rein in arbitrage trades spanning the onshore deliverable and non-deliverable forward markets—which at one point exceeded US$30 billion—pressuring the rupee to record lows.
In recent weeks, the RBI has also been active in the futures market. Bankers report that it has sold US dollars through exchange-traded futures while maintaining a presence across various FX segments to stem volatility and support the rupee.
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## Market dynamics and pricing distortions
The August futures contract expiring next Thursday has been trading at about 95.67 per dollar. Intriguingly, that’s at a discount—not only relative to the local spot rate of 95.74, but also compared with similar contracts in both deliverable and non-deliverable forward markets.
Limited liquidity in the futures market—now dominated by domestic banks after regulatory tightening in late 2024—seems to be exacerbating these pricing mismatches. Less competition and fewer participants enhance the potential for such arbitrage trades.
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## What this means for the rupee
Despite the sizable uptick in arbitrage activity, bankers believe current futures-spot divergences are not large enough to have a material effect on spot exchange rates. The scale of this arbitrage buildup is much smaller than during earlier episodes this year.
Still, the rupee has weakened around 6.5% against the dollar since the beginning of 2026, making it one of Asia’s worst-performing currencies amid strong dollar demand, rising oil prices, and importers hedging against further depreciation.
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## Key takeaways
– **Open interest explosion**: The futures contract’s open interest tripled in just two weeks, surging past US$3.7 billion.
– **Arbitrage resurgence**: Opportunities are leveraging differences between NSE futures and NDF forwards.
– **Regulatory thresholds**: RBI’s cap on net open FX positions aims to restrict speculative arbitrage pressure.
– **Central bank intervention likely**: Dollar sales via futures and active engagement in FX markets have possibly helped stabilize the rupee.
– **Spot rate impact restricted**: Current arbitrage trades, though significant, are unlikely to drive the spot rupee much further in either direction.
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The recent developments highlight how regulatory actions, market structures, and arbitrage activity intertwine in influencing currency behavior. As the RBI continues calibrating its interventions, market watchers will be closely monitoring futures-spot spreads, liquidity patterns, and oil price trends for clues on the rupee’s next move.
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