The Reserve Bank of India (RBI) has opened a special dollar window for state-run oil companies to meet their dollar requirements on daily basis and tightened foreign exchange derivative rules to ease pressure on the rupee and curb volatility. The measures could provide near-term relief, but are unlikely to reverse the currency’s broader depreciation trend, market participants said.
The rupee closed at 96.73 against the dollar on October 9, near its record low of 96.96 touched in May. It has depreciated by more than 7 percent in calendar 2026 and around 3.5 percent in FY27 so far, amid elevated crude prices, a strong dollar, high global bond yields and weak capital flows.
With the rupee nearing its record low, the RBI appears keen to prevent it from breaching the psychologically significant 97-per-dollar mark, where further weakness could intensify corporate dollar-buying and speculative short positions. Traders have reported stepped-up dollar-selling intervention by state-run banks as the currency moves past 96.80.
The RBI has lowered the threshold for certain forex derivative transactions without an underlying exposure to $5 million from $100 million, restricted the rebooking of cancelled rupee-linked contracts and introduced a cash reserve requirement for specified transactions.
Oil window could ease spot-market pressure
Crude oil accounts for around 25 percent of India’s imports. Routing oil companies’ daily dollar requirements through the special window could shift some demand away from the spot market, although the dollars supplied will come from the RBI’s foreign exchange reserves.
A treasury head at a private bank said the measure could ease spot-market pressure, while the derivative restrictions could moderate forward premiums.
“The oil window should help reduce some of the pressure on the spot market, given that crude oil accounts for around 25 percent of India’s imports. The restrictions on derivative transactions could also ease pressure on forward premiums in the near term,” the treasury head at a private bank said.
“The lower threshold for transactions without an underlying exposure would mainly affect positions not backed by a genuine transaction.” Importers hedging actual payment obligations should not be affected in the same way.
“These measures could provide near-term relief to both the spot rupee and forward premiums. But the underlying pressures remain. India’s balance of payments is still weak, the dollar is strong and global bond yields are elevated, an adverse combination for an emerging market that is a net oil importer,” the treasury head said, adding that medium-term depreciation risks would persist.
Dilip Parmar, Research Analyst at HDFC Securities, said the measures were aimed at curbing volatility and speculative positions.
“The RBI is looking to curb excessive volatility and speculative positions, while the special dollar window will move part of the oil companies’ demand away from the spot market. The measures should support the rupee, but banks may pass on the additional hedging costs to customers,” Parmar said.
Derivative rules tighten
The RBI has tightened forex derivative rules by lowering the limit for transactions without an underlying exposure to $5 million from $100 million. It has also barred the rebooking of cancelled rupee-linked contracts, while allowing rollovers at maturity, and introduced a cash reserve requirement of 20 percent of the notional value for specified derivative contracts exceeding $2 million.
The measures aim to curb speculative positions and volatility, though the additional reserve requirement could raise hedging costs for customers. requirement applies to contracts used to hedge current-account exposures where the user buys foreign currency against the rupee. The additional cost could be passed on to customers through higher hedging charges.
Earlier interventions and falling reserves
During the 2013 rupee crisis, the RBI tightened liquidity, restricted certain currency positions and opened a special dollar-swap window for oil marketing companies. It also introduced a swap facility to attract foreign currency deposits from non-resident Indians.
In February 2018, the RBI raised the limit for exchange-traded currency derivative positions without an underlying exposure to $100 million. In March 2026, it capped banks’ net open dollar-rupee positions at $100 million and restricted authorised dealers from offering non-deliverable forwards to clients to curb arbitrage between onshore and offshore markets. Governor Sanjay Malhotra said in April that the restrictions were temporary.
The latest measures come as foreign exchange reserves have declined. Reserves fell by $18.34 billion to $757.46 billion in the week ended September 25 and by another $12.95 billion to $734.61 billion in the week ended October 2.
The combined decline of around $31.3 billion over two weeks leaves reserves about $51.1 billion below the record high of $785.7 billion in the week ended September 4. RBI dollar sales may have contributed, although valuation changes in foreign currency assets and gold also affect the headline figure.
At the October 7 monetary policy press conference, Malhotra said the rupee could be undervalued based on measures such as the real effective exchange rate. “Markets can be quite irrational in the short run,” he said, adding that the RBI would work to ensure the currency stabilised and moved in an orderly manner.
Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, said the measures should be temporary.
“The Governor has already said that the rupee is undervalued and that the RBI would take all steps to bring it back to its fair value. These measures should be temporary,” Bhansali said. He added that the rupee could recover towards 94.50-95 per dollar, which he considers closer to fair value.
Separately, the RBI has scheduled an open market sale of government securities worth Rs 25,000 crore for October 13 to absorb surplus liquidity. From the fortnight beginning October 16, banks must maintain at least 99 percent of their prescribed cash reserve ratio (CRR) on a daily basis, up from 90 percent earlier. The change affects daily maintenance against banks’ net demand and time liabilities (NDTL), not the prescribed CRR ratio itself.
