October 14, 09:42Aaj Tak

RBI strategy helped strengthen the rupee: currency rose by 86 points against the dollar in two days

The Indian rupee demonstrated resilience against the US dollar, showing growth for the second consecutive day. New measures by the Reserve Bank of India (RBI) had a positive impact, allowing the rupee to strengthen by 44 points at the start of trading and reach the level of 94.92 per dollar. The previous trading session was also marked by a rise in the rupee.

Market attention is now focused on whether the rupee can hold below the 95 mark or if demand pressure for the dollar and global factors will halt its upward trend.

In the interbank foreign exchange market in Mumbai on October 14, the rupee opened at 95.05 per dollar, after which it continued to strengthen to 94.92. This increase amounted to 44 points compared to the previous close. On Tuesday, the rupee also rose by 42 points, closing at 95.36 per dollar. Currency traders note that recent measures taken by the RBI to stabilize the rupee have provided support to the currency market. The goal of these measures is to reduce immediate demand for the dollar and limit speculative positions against the rupee.

To reduce pressure on the rupee, the RBI has taken a number of actions. Among them are a special agreement to exclude the needs of oil refining companies for dollars from the spot market and tightening rules for trading derivative financial instruments in foreign currency. The central bank also instructed banks to hold 20% of reserves when purchasing more than 20 million dollars. These steps are aimed at limiting dollar demand and speculation in the market. Nevertheless, the further movement of the rupee will depend on dollar demand and global market sentiment.

According to currency traders, if the rupee remains below the 95 level per dollar, its growth may continue, and the next important milestone could be the 94.50 level. However, these are only market forecasts, not established targets. Finance Minister Nirmala Sitharaman stated on Tuesday that the rupee has significantly weakened over the last year and a half. She also emphasized that external challenges play a large role in the volatility of the rupee. The RBI is focusing on preventing excessive fluctuations in the rupee, while the government is concentrating on strengthening the fundamentals of the domestic economy.

The dollar index fell by 0.06% on Wednesday to 102.11. This index measures the strength of the dollar against six major currencies. On the other hand, Brent Crude futures rose by 0.57%, reaching $106.29 per barrel. The rise in crude oil prices is important for India, as the country imports a significant portion of its needs. The increase in oil prices may require more dollars for imports, creating a risk of pressure on the rupee. Therefore, despite RBI measures, monitoring global market dynamics is necessary.

Despite the rupee's strengthening, the domestic stock market showed weakness. At the start of trading, the Sensex index fell by 32.96 points to 73,000.82, and the Nifty declined by 32.65 points to 22,688.75. According to exchange data, Foreign Institutional Investors (FIIs) made a net sale of 1.30513 crore rupees in the Indian stock market on Tuesday. Thus, currently, there is no single direction of movement between the strengthening of the rupee and the dynamics of the stock market. For the rupee, the 95 per dollar level is currently considered important. Although recent RBI steps have given the rupee initial support, sustained growth requires support from market conditions. The next trading sessions will show how long this recovery of the rupee will last.

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www.aajtak.inOctober 12, 11:16

RBI tightens control over the dollar, leading to strengthening of the Indian rupee

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.