The Reserve Bank of India (RBI) has begun implementing measures aimed at supporting and strengthening the Indian rupee. These steps, taken on October 12, have helped reduce demand for the dollar in the spot market and limit speculative currency trading, which caused a significant rise in the Indian currency against the dollar.
Following the implementation of these restrictions on Monday, the rupee rose by more than 1% at the opening of the foreign exchange market. Thanks to these policy measures controlling the demand for cash and forward dollars, the Indian rupee reached a level of 95.74 against the dollar, which is 1% higher than the Friday close at 96.73. Furthermore, the Indian rupee is showing strong performance among other Asian currencies.
This improvement in the exchange rate occurred after a period of rupee weakening: it lost over 7% in the current calendar year and about 3.5% in the 2027 fiscal year. In May of this year, the rupee approached its historical low of 96.96 per dollar. The main factors pressuring the rupee were the sharp rise in crude oil prices, the strengthening of the dollar, and constant outflow of foreign capital.
According to a Reuters report, City economists believe that after the recent central bank measures, the rupee may suddenly accelerate towards stabilization. In a statement published on Monday, they noted that the RBI's package of measures increases the cost of short-term operations related to rupee depreciation, but this does not eliminate existing pressure on the balance of payments.
The RBI announced that US dollars will be sold to Indian oil refining companies: Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL), and Bharat Petroleum Corporation (BPCL). This arrangement came into effect on Monday, October 12, 2026, and will remain in force until further notice. Under this system, the RBI will provide dollars to the three state-owned oil companies through banks to meet their daily foreign currency needs for operational activities.
The RBI created a special channel for the three refining companies, assessing current market conditions, allowing them to receive dollars through the banking system. The oil distributors require dollars to pay for crude oil imports and other overseas expenses.
The central bank reduced the limit for certain foreign currency derivative transactions from $100 million to $5 million. This revised limit also applies to currency derivatives linked to the rupee traded on recognized stock exchanges. The goal is to ensure that large derivative positions are used to support imports or exports, rather than primarily for speculative purposes.
The next initiative by the RBI introduced a mandatory Foreign Exchange Risk Reserve (FERR) requirement for currency derivative contracts with a notional value exceeding $20 lakh and pegged to the rupee. Registered dealers must hold a cash reserve with the RBI equivalent to 20% of the rupee value of each corresponding transaction. This requirement applies to contracts used for hedging current account risks when users buy foreign currency against the rupee.
Users entering into currency derivative contracts must obtain and retain a declaration from registered dealers confirming that the same risk is not being hedged through another dealer. This condition is intended to prevent double hedging of the same risk and improve market conditions.
These measures may reduce speculative demand for the dollar and ease short-term volatility. They were introduced at a time when, despite central bank intervention in the forex market and interest rate hikes, the rupee remained close to its record low last Friday. On Friday, the rupee closed at 96.73 rupees per dollar, close to the historical low of 96.96 rupees. After the central bank's measures were introduced, the rupee showed a rapid recovery.