On Monday, October 12, the Indian rupee experienced a sharp rally against the US dollar following the Reserve Bank of India’s rollout of steps designed to slow dollar demand and steady the domestic currency. Meanwhile, government bonds continued their downward slide as market participants weighed tightening monetary policies, liquidity actions, and expectations of more interest rate hikes.
Rupee Rises To 95.76 Against Dollar
The rupee opened trading at 95.76 per dollar, up from its Friday finish of 96.73, which represents a gain of roughly 1%. Following the central bank’s announcement, the currency emerged as one of the top performers in Asia for the session.
The RBI rolled out these initiatives on Saturday as the rupee neared all-time lows, pressured by high crude oil prices, ongoing foreign capital outflows, and heavy demand for the greenback. Even with previous interventions by the central bank, the currency had declined by about 6.6% against the dollar over the course of 2026.
As part of the package, the central bank set up a dedicated dollar window for three public-sector oil marketing companies:
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Indian Oil Corporation
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Hindustan Petroleum Corporation
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Bharat Petroleum Corporation.
Beginning October 12, this mechanism permits the firms to secure their daily dollar needs via appointed banks.
RBI Targets Oil Companies’ Dollar Demand
This framework is designed to divert a major driver of dollar buying away from the spot foreign exchange market. Additionally, the RBI lowered the threshold for specific derivative trades lacking underlying exposure from USD 100 million down to USD 5 million, and mandated that banks hold a 20% cash reserve for particular foreign exchange contracts valued over USD 2 million.
These adjustments risk increasing hedging expenses for corporations while dampening interest in forward-dollar agreements. The sell-off persisted into Monday, pushing the yield on the benchmark 2036 government bond up to 7.3553%, marking its peak since March 2023. Because bond yields and prices move in opposite directions, the higher yield highlights a further drop in bond valuations.
Traders were also evaluating the consequences of the RBI’s upcoming open market sale of government bonds totaling Rs. 25,000 crore, alongside stricter daily cash reserve mandates.
Also Read: RBI Rupee Defense: USD 5 Million Forex Limit Replaces USD 100 Million
