New Delhi, March 30 -- The rupee strengthened by 1.3% to reach 93.59 per US dollar on Monday, March 30, due to the unwinding of arbitrage as a result of the central bank's restrictions on onshore position limits.

The Reserve Bank of India (RBI) instructed banks on Friday, March 27 to limit their net open positions in rupees in the foreign exchange market to $100 million by the end of each trading day, with full compliance needed by April 10.

The RBI's restrictions on onshore position limits are likely to result in banks selling dollars in the domestic foreign exchange market as they unwind their existing arbitrage trades.

These arbitrage transactions were established by purchasing dollars onshore and selling them in the non-deliverable...