The Reserve Bank of India's latest liquidity-draining measures have pushed up overnight funding costs, while importers took advantage of a stronger rupee to buy forward dollars, sending USD/INR forward premiums sharply higher, according to Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

The three-month USD/INR forward premium rose 30 basis points to 5.67%, the highest level since April 6. The weighted average call rate climbed to 5.40%, a more than three-month high.

Bhansali said the RBI's latest foreign exchange policy has reduced banks' participation in the market, causing forward market liquidity to dry up.

He noted that exporters are holding off on selling forward dollars, waiting for the USD/INR exchange rate to recover above 96.