The rupee strengthened to 95.74 against the dollar on Monday, compared with Friday’s closing level of 96.73, marking a gain of around 1%. The Indian currency also outperformed other Asian currencies following the implementation of the RBI’s policy measures to control spot and forward dollar demand.
Rupee Rebounds After Heavy Losses This Year
The recovery comes after the Indian rupee weakened by more than 7% during calendar year 2026 so far and by approximately 3.5% or more in the financial year 2027 so far. During trading in May, the currency had approached its record low of 96.96 against the US dollar.
The rupee has remained under pressure due to rising crude oil prices, a strengthening US dollar and sustained foreign capital outflows. These factors have weighed on the domestic currency despite the central bank’s interventions in the foreign exchange market and increases in interest rates.
Friday’s closing level of 96.73 against the dollar had left the rupee close to its record low of 96.96 recorded in May. However, the currency staged a sharp recovery after the RBI’s latest measures took effect on Monday.
Experts Expect Short-Term Volatility Before Stabilisation
According to a Reuters report, economists at Citi believe the central bank’s latest measures could trigger a sharp appreciation in the rupee before the currency stabilises.
In a statement issued on Monday, Citi economists said, “The RBI’s package of measures increases the transaction costs of short-term trades related to rupee depreciation, but does not address the existing pressures on the balance of payments.”
The assessment suggests that while the restrictions could influence short-term currency movements, the underlying pressures affecting the rupee may persist.
RBI Introduces Special Dollar Window for Oil Companies
One of the central bank’s measures involves selling US dollars to Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL).
The arrangement became effective on Monday, October 12, 2026, and will remain in force until further notice. Under the mechanism, the RBI will sell US dollars to the three public sector oil companies through designated banks.
The facility is intended to help the companies meet their daily foreign exchange requirements for operations. Oil distribution companies require dollars to pay for crude oil imports and other overseas expenses.
By providing a dedicated channel for dollar purchases through the banking system, the RBI aims to manage the companies’ foreign currency requirements under the special arrangement.
Foreign Exchange Risk Reserve of 20% for Eligible Derivatives
Another measure introduced by the RBI makes a Foreign Exchange Risk Reserve (FERR) mandatory for eligible rupee-linked foreign exchange derivative contracts with a notional value exceeding $2 million.
Registered dealers will be required to maintain a cash reserve with the RBI equivalent to 20% of the rupee value of each eligible transaction.
The requirement applies to contracts used to hedge current account exposures in which users purchase foreign currency against the rupee. The measure forms part of the central bank’s broader effort to regulate foreign exchange transactions and curb speculative activity in the market.
Stricter Documentation Rules for Currency Hedging
The RBI has also tightened documentation requirements for foreign exchange derivative transactions.
Registered dealers must obtain and retain an undertaking from users entering into foreign exchange derivative contracts. The undertaking must confirm that the same risk has not been hedged through another dealer.
The requirement is intended to prevent double hedging of the same exposure and improve the functioning of the foreign exchange market.
RBI Measures Aim to Curb Speculative Dollar Demand
The new restrictions are expected to reduce speculative demand for dollars and provide some relief from short-term volatility in the rupee. They come at a time when the domestic currency had remained near its record low despite the central bank’s interventions in the foreign exchange market and increases in interest rates.
The rupee’s rise to 95.74 against the US dollar on Monday, from Friday’s close of 96.73, marked an immediate response following the implementation of the RBI’s measures. However, as Citi economists have noted, higher transaction costs for short-term trades linked to rupee depreciation do not eliminate the existing balance-of-payments pressures.
The currency’s subsequent movement will therefore remain important in assessing the impact of the RBI’s measures on dollar demand, speculative trading and the rupee’s stability.
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