NDF is a forex derivative instrument, traded over-the-counter and operated in currencies that are freely convertible unlike the rupee. "It seems the RBI and finance ministry officials gave a dressing down to the NDF players," a forex analyst with a brokerage told PTI.

On the day Raghuram Rajan took over as RBI Governor (September 4), the rupee gained by 56 paise to 67.07, while on the last working day of his predecessor D Subbarao on September 3, the rupee had tanked 163 paise to 67.63.

Between September 3 and 13, the rupee rallied 6.2 percent to close the last trade at 63.48 to the greenback. Earlier this month the one-month NDF market was quoting at 70 to the dollar. The rupee plunged to its life-time depth on August 28 (68.85 intra-day and closing at 68.80).

A treasury head with a private-sector bank said, "Since the past six trading sessions, the volumes have come down significantly in the NDF market."

The NDF, or the offshore, market remains outside the regulatory purview of the Reserve Bank but it controls the onshore market to a considerable extent. The RBI does not allow domestic financial institutions to trade in the NDF markets.

Economic affairs secretary Arvind Mayaram, on August 31, had a closed-door meeting with treasury heads of the leading foreign banks. According market participants, it was primarily aimed at controlling the NDF market, where the rupee was getting shorted aggressively.

Shorting, in this case, is the sale of a borrowed currency with the hope that its value will fall in future. If the currency actually falls in price, the investor buys it for less than he or she sold it, thus making a profit.

Foreign exchange dealers, however, also attributed the rally in the rupee to the sentiment-boosting measures announced by Rajan, apart from some liquidity easing measures.

Forex market analysts feel once foreign banks branches operating here come under the ambit of the RBI, the central bank would be in a better position to curb trading in NDF. An internal research report published in the RBI annual report early last month had also admitted that NDF market was influencing the rupee movement to a considerable extent.

"During the period of (rupee) depreciation, shocks originating in NDF market may carry more information, which get reflected in the on-shore segments of the market through mean and volatility spillovers," the RBI study said.

PTI