RBI tightens rupee derivatives rules as currency climbs to 95.76 per dollar

What Happened

The rupee jumped 1% to 95.76 against the U.S. dollar at Monday’s opening after the Reserve Bank of India rolled out a package of measures aimed at curbing dollar demand and speculative trading. The RBI barred the rebooking of cancelled foreign‑exchange derivative contracts, raised hedging costs and slashed the limit for derivative deals without proven underlying exposure from $100 million to $5 million, a 95% cut. It also introduced a new Foreign Exchange Risk Reserve and tightened documentation requirements.

Market Reaction

Barclays noted that while weaker importer demand could ease forward‑premium pressure, higher balance‑sheet costs and tighter liquidity may keep pricing high. The rupee’s rise comes as crude oil trades above $100 a barrel, pushing imported inflation and prompting the RBI to lift the repo rate by 25 basis points to 5.50% on Oct 7. Forex reserves fell $12.95 billion to $734.60 billion in the week to Oct 2, even as the FCNR scheme attracted over $143 billion in inflows. Analysts said the tighter rules raise the cost of large currency positions and force banks to verify genuine exposure, signalling the central bank’s intent to keep the foreign‑exchange market aligned with real economic needs.

Context

The RBI’s actions come amid a broader effort to rein in speculation as the rupee hovers near the 97 mark and inflation expectations rise, especially with retail inflation projected at 5.2% for FY27.