MUMBAI — The Reserve Bank of India directed banks to cap their foreign currency exposure at a maximum of US$100 million at the end of each trading day, moving to support the rupee after it fell to a record low of 95.34 per US dollar. The central bank has also been deploying its foreign exchange reserves in spot and forward markets to defend the currency.

The RBI is tightening regulations on non-deliverable forwards to stop banks from offering related derivative contracts to clients, and has imposed curbs on the rebooking of previous foreign exchange contracts. Those restrictions on rebooking could force the unwinding of as much as $50 billion in arbitrage trades. The central bank's foreign exchange reserves topped $700 billion in late April.

The pressure on the rupee is part of a broader strain on Asian currencies. The rupiah reached 17,000 per US dollar for the first time since the 1997-98 Asian financial crisis, with downward pressure coming from US dollar strength, capital outflows, rising energy costs and renewed worries about fiscal sustainability. Foreign investors have been selling Indonesian government bonds, and traders are pricing in around a 33% chance that the rupiah weakens to 18,000 over the next three months. Bank Indonesia is tightening monetary policy, intervening in markets and restricting foreign exchange management to defend the rupiah. Currency traders are also increasingly betting on a weaker Philippine peso.

The yen surged by as much as 3% on Thursday, the most in a single day in over three years, after Tokyo intervened in the currency market for the first time since 2024 to stabilize the yen. The yen had been trading near 160 per US dollar.

Oil was trading above $120 per barrel, and Asian governments have restricted fuel use, increased subsidies and dispatched diplomats to secure alternative oil sources. Early signs of inflation pass-through have emerged, with the Philippines the first emerging-market central bank to tighten policy. The US bond market has been acting as a safe haven despite US policy uncertainty. The US national debt is nearing $40 trillion, and the dollar has been rising despite high US inflation and President Donald Trump's tariffs, tax cuts and spending.

The currency strains echo earlier episodes. In 1997, a multi-year dollar rally made Asia's currency pegs impossible to maintain, prompting Thailand, Indonesia and South Korea to devalue their currencies and seek bailouts from the International Monetary Fund and other agencies totaling $118 billion. In 2013, market jitters over hints that the Federal Reserve might slow asset purchases prompted Morgan Stanley to publish a "fragile five" list consisting of Brazil, India, Indonesia, South Africa and Turkey.