To take immediate pressure off the currency, the RBI will start selling dollars to Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. from Monday through selected banks. In addition, a new FX risk buffer will require banks to deposit with the RBI an amount in rupees equal to 20% of the notional size of any derivative transaction exceeding $2 million. The RBI also tightened market rules by stopping dealers from rebooking canceled rupee-linked FX derivatives and by cutting the size of FX derivative deals allowed without proving an underlying exposure to $5 million from $100 million.
The rupee is Asia's laggard this year, down more than 7%, and ended Friday just above its all-time low of 96.9650 per dollar. Despite rate hikes and dollar sales by the RBI, reserves fell by $51 billion over the four weeks ending Oct. 2. The currency closed 0.1% higher at 96.7350 in Mumbai on Friday and strengthened 0.6% in offshore New York trading after the new steps were unveiled.
The RBI's toolkit has been busy this year. It set banks' daily net open positions at $100 million and briefly barred lenders from offering non-deliverable rupee contracts to clients before reversing that ban. In June, it scrapped taxes on foreigners' bond purchases and launched a diaspora deposit program that raised $133 billion. This week, it raised its benchmark policy rate for the first occasion in nearly four years and indicated it could hike again.
Currency defenses on this scale are rare and tell you how serious the pressure is. Market Briefs covers central bank action free every morning.
Traders expect the new measures to siphon off a big chunk of dollar demand. Finrex Treasury Advisors' head of treasury in Mumbai, Anil Kumar Bhansali, said, "The RBI's measures represent a virtual shutdown of the market." He added, "The dollar demand from hedging and from the oil companies will now exit the market plus there are severe restrictions on export and import activities. We should see at least a 1% rally in the rupee on Monday."
Anindya Banerjee, who oversees research on commodities and currency derivatives at Kotak Neo, called it "the most comprehensive set of currency-market measures since 2013." Back then, the RBI set up a dollar window for oil firms and supplied about $12 billion to refiners to steady the currency. The fresh foreign exchange risk reserve is new, echoing a China-style approach where banks must set aside cash tied to certain FX business.
Economists are clear that these are stopgaps. Radhika Piplani, economist at Motilal Oswal Financial Services Ltd., said, "This is a short-term fix, not a structural solution," pointing to "high crude prices, capital outflows and underlying dollar demand" as ongoing risks. Amid a rotation toward artificial intelligence-led markets, overseas investors have pulled over $30 billion out of domestic stocks this year. Lasting relief for the rupee likely hinges on an improved balance of payments.
The RBI is trying to cool near-term dollar demand while keeping optionality on rates. If the special window and the new reserve requirement take heat out of FX markets, the rupee could catch a short-term bounce, especially with traders expecting immediate demand from oil buyers to move off-market. The bigger picture still matters: oil prices, foreign flows and growth prospects will do more to set the currency's trajectory than any single weekend package. If you have India exposure, watch how these pressures evolve rather than the first day's pop.
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