The rupee rose 0.99 per cent on Monday to close at 95.78 against the dollar, its biggest single-day gain since April 2, 2026, after the RBI announced a series of measures on Saturday, including a dedicated daily dollar window for state-owned oil marketing companies (OMCs) that took effect on Monday.
The benchmark 10-year government bond yield, meanwhile, rose 9 basis points to 7.39 per cent, its highest since March 10, 2023, as the RBI’s planned open market operation (OMO) bond sale added to selling pressure. The announcement heightened concerns over additional securities supply, prompting investors to stay on the sidelines amid rising yields.
The relief for the rupee is expected to be temporary. The currency, which has depreciated 6.17 per cent against the dollar so far in 2026, is forecast to weaken to around 96 per dollar by December-end, according to the poll median. Some expect it to fall to 96.75-97.25 by the end of March 2027.
“We had reiterated many times that the external sector problem now is no longer from the current account side, but it is due to weakness in the capital account — mostly due to lower inflows into India on account of global geopolitical risks and higher global yields,” Yes Bank said in a note. “It is unlikely that the measures will lead to any sustained INR appreciation, and we expect a range of 96.75-97.25 for USD/INR by end-March 2027,” it said.
According to Barclays’ note, the RBI’s measures alter “where and when USD are bought, but not the underlying demand generated by oil, trade and capital outflows”.
“Our view remains one of gradual, more orderly INR depreciation,” it said, adding that the measures should provide near-term support to the rupee and improve market functioning but do not remove the fundamental case for gradual depreciation.
The central bank’s decision to raise the minimum daily maintenance requirement for the cash reserve ratio (CRR) from 90 per cent to 99 per cent of the prescribed requirement, effective from the fortnight beginning October 16, was seen as having limited incremental impact, as banks had little additional headroom under the earlier requirement. The planned ₹25,000 crore bond sale, however, added to concerns over supply at a time when investors were reluctant to buy securities amid rising yields.
“The rate hike is now seen steeper than earlier expected, which has hit sentiment,” said the treasury head at a state-owned bank. “The OMO sales always spook the market, hence we saw the selling in the market today,” the person added.
The last time the rupee gained around 1 per cent in a single session was on April 2, when it rallied after the RBI barred banks from offering rupee non-deliverable forwards (NDFs) to resident and non-resident clients. The move followed the central bank’s decision to cap banks’ net open positions in the onshore rupee market at $100 million, forcing lenders to unwind positions and sell dollars.
Pressure on the Indian unit has persisted despite a special concessional forex swap window that helped mobilise $143 billion until September 18. The central bank intervened heavily in the foreign exchange market over the past month, depleting foreign exchange reserves by $51 billion in four weeks.
“The measures unveiled by the RBI (over the weekend) have reduced volatility in the rupee by creating a separate window for OMCs and reducing the hedging demand of importers via the foreign exchange reserve ratio (FERR), and reduced speculative hedging by lowering limits,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank.
These measures will improve the efficacy of the RBI’s intervention in the spot market, reducing the pace of intervention needed by the central bank to control the currency, she added.
Poll respondents expect the depreciation bias to persist, with some suggesting that the RBI may need to raise interest rates more aggressively to counter pressure on the rupee. The central bank’s priority of rebuilding reserves could also limit the scope for sustained currency appreciation.
“While exchange rate flexibility is a shock absorber, authorities are mindful of the risks associated with a one-way move. Should depreciation pressure re-intensify, markets could assign a higher probability to a steeper hike cycle,” said Radhika Rao, senior economist and executive director at DBS Bank.
The central bank began its rate-hiking cycle last week, raising the policy repo rate by 25 basis points to 5.5 per cent.
