The Reserve Bank of India’s (RBI’s) weekend measures to stem the rupee’s depreciation could ease pressure on the spot market and forward premiums in the near term, but are unlikely to reverse the currency’s broader weakening trend, market participants said.
The rupee closed at 96.73 per dollar on Friday, near its record low of 96.96 per dollar touched on May 20, 2026.
On Saturday, the central bank announced a dedicated dollar window for three state-run oil marketing companies (OMCs) and tightened foreign exchange derivative rules to curb speculative positions and reduce dollar demand arising from hedging activity.
“The measures are expected to result in near-term reduction in USD-INR as well as lower forward premiums,” said Gaura Sen Gupta, chief economist at IDFC First Bank.
“That said, over the medium term, the trajectory of USD-INR will be determined by global factors and Balance of Payment dynamics. These factors would keep depreciation pressure on the currency in the medium term, but RBI measures will reduce the pace of depreciation,” she said.
The rupee has depreciated by over 7 per cent year-on-year and around 6 per cent since the West Asia conflict began on February 28, 2026, amid elevated crude oil prices, a strong dollar, high global bond yields and weak capital flows. The latest measures come as the currency faces renewed pressure near the 97-per-dollar mark.
“These measures will help for now, but they don’t fix what is driving the rupee lower. Crude is still high, the dollar is strong, global yields are elevated and our balance of payments is weak. Until that change, the pressure on the rupee will stay,” a treasury head at a private bank said.
The RBI said it would meet the entire daily dollar requirements of Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) through a special window from October 12.
Public-sector OMCs account for $10 billion-$12 billion of monthly oil-related dollar demand, or $300 million-$400 million a day, according to market participants. Routing these purchases through the RBI could reduce demand in the open market and help ease pressure on the rupee.
“While some of this demand could be in forwards, we see this measure of RBI providing a separate window to OMCs as helping remove a significant amount of spot Dollar demand from the market,” Kotak Mahindra Bank said in a report.
The central bank has also barred the rebooking of cancelled rupee-linked foreign exchange derivative contracts, whether deliverable or non-deliverable. It has lowered the threshold for transactions to hedge contracted exposures without establishing the underlying exposure to $5 million from $100 million, calculated across all authorised dealers. The revised threshold is intended to curb speculative positions taken without establishing an underlying exposure, rather than to eliminate speculative activity altogether.
A similar threshold applies to rupee-linked exchange-traded currency derivatives across recognised exchanges. Transactions above the applicable threshold require additional documentation to establish the underlying exposure. The $5 million threshold does not constitute an overall cap on genuine hedging transactions.
The RBI has also introduced a Foreign Exchange Risk Reserve (FERR) requirement. Under this, authorised dealers must maintain cash with the central bank equivalent to 20 per cent of the rupee value of specified derivative contracts where users buy foreign currency against the local unit and the notional value exceeds $2 million.
“During periods when there is sustained depreciation pressure on the INR, importer hedging increases while that of exporters reduces. This gap in hedging behaviour between importers and exporters creates additional dollar demand. To address this RBI has introduced Foreign FERR, which is like an FX CRR,” Sen Gupta said.
The additional reserve requirement could raise hedging costs for clients as banks pass on the higher cost of funds, potentially reducing demand for forward cover and easing forward premiums, market participants said. The impact could vary between importers hedging actual payment obligations and those undertaking transactions without establishing the underlying exposure.
The RBI’s latest steps follow earlier interventions to contain currency volatility. In August 2013, the central bank opened a special window for the same three oil companies to meet their daily dollar requirements through dollar-rupee swaps. In March 2026, it capped banks’ net open dollar-rupee positions in the onshore deliverable market at $100 million and subsequently tightened access to non-deliverable forward contracts for clients and related parties.
