India's central bank has forbidden banks from offering non-deliverable derivatives on the rupee, marking its second policy intervention this week to support the currency. The move provided relief to the rupee, which strengthened 1% against the dollar to trade around Rs93.4, compared with Rs94.35 on Monday. India's FX markets were closed Tuesday and Wednesday, allowing the currency to stabilize.

The latest action intensifies the Reserve Bank of India's efforts to prop up the currency following the oil price shock caused by the Iran war. On Monday, the RBI instructed banks to limit their open positions to no more than $100mn, though the rupee soon lost those gains as banks passed on exposure to corporates, pushing the currency below Rs95 for the first time.

The new restrictions make it increasingly difficult to bet on the rupee's direction within India's financial system. Analysts estimate the daily size of offshore trade was around $140bn to $150bn. The RBI's focus on speculators reflects a desire to preserve intervention firepower, especially given the trade deficit averaging $34bn monthly at current oil prices, which will continue to pressure the currency.