RBI Steps In With New Dollar Window And Derivative Currencies Rules To Support Rupee

The Reserve Bank of India will supply dollars directly to three state-run oil marketing companies starting 12 October, a move expected to drive the rupee one percent higher. The central bank will meet the full daily dollar needs of Indian Oil Corp., Hindustan Petroleum Corp., and Bharat Petroleum Corp. through designated banks. This step removes heavy oil purchases from the spot market. The rupee closed at 96.73 per dollar on Friday, near its record low of 96.96 in May. It has dropped nearly 8% this calendar year and 11% in FY26.

New Curbs

The RBI also announced four measures to stop speculative trades in the foreign exchange market. These rules bar the rebooking of cancelled rupee-linked derivative contracts and lower the limit for trades without underlying exposure to $5 million from $100 million. Clients must now confirm that the same underlying exposure has not been hedged through another dealer. Banks must also keep a cash reserve of 20% for certain derivative contracts exceeding $2 million under a new Foreign Exchange Risk Reserve.

Market Outlook

Experts expect the actions to give immediate relief and lower forward premiums. However, analysts note that high crude prices and weak capital flows will keep pressure on the currency over the long term. Gaura Sengupta of IDFC FIRST Bank expects the rupee to trade in the 96.50 to 97 range by the end of March. Dhiraj Nim of ANZ sees the currency weakening to 97.50 over six to 12 months. India's foreign exchange reserves stood at $734 billion as of 2 October, down from $765 billion on 18 September.

Context

Central banks use currency reserves and direct market interventions to manage sharp currency swings and protect domestic purchasing power. Because India imports about 90% of its crude oil, a weaker rupee directly increases import bills and fuels domestic inflation. While short-term supply windows ease immediate dollar demand, broader economic trends like global interest rates and oil prices ultimately dictate currency values.