On October 10, 2026, the Reserve Bank of India (RBI) unveiled new strategies to defend the rupee, focusing on speculative currency trades and soaring dollar demand. This intervention includes a dedicated dollar window for a trio of state-owned petroleum firms alongside stricter regulations on foreign exchange derivatives to dampen volatility.
These policy steps coincide with the rupee trades near its record low against the greenback. After settling at Rs. 96.73 on October 9, the currency is nearing the historic low of Rs. 96.96 set back in May. Through these actions, the RBI seeks to alleviate near-term market strains and tighten supervision over currency dealings.
Beginning October 12, the central bank will directly fulfill the daily dollar needs of Bharat Petroleum Corporation (BPCL), Indian Oil Corporation (IOC), and Hindustan Petroleum Corporation (HPCL). By channeling these greenbacks through appointed banks, the central bank cuts down the heavy spot-market dollar buying typically done by these corporations.
Because the country brings in large amounts of crude oil, these petroleum giants are major purchasers of dollars. While this dedicated facility diminishes immediate market competition for the currency, fulfilling these needs will tap directly into the RBI’s foreign exchange reserves.
Additionally, the central authority has clamped down on the rebooking of canceled rupee-linked foreign exchange derivative contracts. While rollovers at maturity remain permissible under current regulations, users are barred from rebooking eligible contracts that are canceled after the new guidelines become active.
In another significant shift, the threshold for specific derivative positions lacking documented underlying exposure drops from USD 100 million down to USD 5 million. This updated ceiling also encompasses exchange-traded currency derivatives tied to the rupee, a move likely to curb oversized speculative holdings.
Furthermore, the RBI established a Foreign Exchange Risk Reserve (FERR) mandate for designated rupee-linked derivative contracts that surpass USD 2 million. For these qualifying agreements, authorized dealers are required to hold a cash reserve totaling 20% of the transaction’s rupee-equivalent worth.
To bolster transparency and eliminate duplicate hedging, supplementary documentation mandates will require clients to verify that their underlying exposure has not been hedged through another authorized dealer.
Concurrently, the nation’s foreign exchange reserves dropped by USD 12.95 billion down to USD 734.60 billion for the week ending October 2. This represents the fourth straight week of declines, bringing total reserves to roughly USD 51 billion below the record high attained in September.
While this regulatory package from the RBI has the potential to soften short-term demand for dollars and deter speculation to foster a more stable currency market, a lasting recovery for the rupee will still hinge on external factors like crude oil prices, foreign capital inflows, and broader shifts in the US dollar.
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