On Saturday morning, with the rupee hovering within touching distance of its weakest level ever, the Reserve Bank of India moved to protect the currency with a fresh set of measures. The centrepiece: a special dollar window for the country’s three state-run oil marketing companies, allowing them to buy dollars directly from the central bank starting Monday instead of scrambling for them in the open market.
The rupee closed Friday at 96.73 to the dollar, barely changed from the previous session but uncomfortably close to the all-time low of 96.96 hit in May this year. The currency has lost more than 7 per cent against the dollar in 2026, battered by expensive crude, rising global bond yields and steady foreign investor outflows.
What exactly did the RBI announce?
The central bank’s announcement packs several measures aimed at cooling dollar demand and calming speculation in the currency market:
- Special dollar window for oil companies: Indian Oil, Hindustan Petroleum and Bharat Petroleum will be able to meet their daily dollar requirements directly through the RBI, drawing on the country’s foreign exchange reserves. Oil importers are among the largest buyers of dollars in the market, so taking their demand off the spot market should immediately ease pressure on the rupee.
- No rebooking of forex derivatives: Forex dealers have been told they will not permit users to rebook cancelled foreign exchange derivative contracts, a step aimed at stopping speculative churn in the market.
- Tighter currency derivative limits: The cap on positions in exchange-traded currency derivatives involving the rupee has been slashed to $5 million from $100 million, sharply limiting the scope for leveraged bets against the currency.
- New risk reserve rule: Forex dealers must now maintain a “foreign exchange risk reserve” equal to 20 per cent of the notional amount of every rupee derivative contract, raising the cost of running large positions.
Why oil companies are the key
India imports the bulk of its crude oil, which means refiners need a constant, massive flow of dollars to pay for shipments. When oil prices spike, as they have in recent weeks with Brent crude touching nearly $106 a barrel, that dollar demand surges and hits the rupee hard.
By supplying dollars directly from its reserves, the RBI removes this heavy buyer from the spot market. The central bank has used this playbook before during episodes of currency stress. The early reaction was encouraging: the rupee rallied in the offshore non-deliverable forward market on Saturday, with the one-month dollar-rupee contract falling about 40 paise in thin trading, traders said.
The backdrop: reserves are shrinking
The intervention has not been cheap. India’s foreign exchange reserves fell for a fourth consecutive week to $734 billion in the week ended October 2, down from a record $785 billion in the week ended September 4. That is a drop of roughly $51 billion in just four weeks, as the RBI sold dollars to defend the rupee.
RBI Governor Sanjay Malhotra sought to calm nerves after Wednesday’s policy meeting, saying reserves remain adequate with import cover of about eleven months, and adding that the rupee may be undervalued while markets can be “irrational in the short run”. He also said the central bank would ensure the rupee finds its “correct value” and prevent excessive volatility.
The pressure has multiple roots. The RBI’s own monetary policy report pointed to crude oil costs averaging $114-116 a barrel in September, a 13 per cent deficit in the southwest monsoon and El Nino conditions pushing up food prices. Meanwhile, the US Federal Reserve has hiked rates and signalled more tightening ahead, keeping American yields high and the dollar strong. The spread between Indian and US 10-year bond yields has shrunk to a 22-year low, making Indian assets less attractive to foreign investors.
What this means for you
A weaker rupee makes imports costlier, from fuel to electronics to foreign education. The rate hike the RBI delivered on Wednesday, raising the repo rate by 25 basis points to 5.5 per cent for the first time in nearly four years, will also push up loan EMIs over time. Together, a falling currency and rising rates squeeze household budgets twice over.
For now, the RBI’s message is clear: it will not stand by and watch the rupee slide through its record low without a fight. Whether the new measures hold the line when markets reopen on Monday will depend on how crude prices and global yields behave. But Saturday’s announcement signals a central bank willing to use every tool in its kit.
Frequently asked questions
Why is the rupee falling?
A combination of high crude oil prices, a strong US dollar, rising American interest rates and foreign investor outflows has pushed the rupee down more than 7 per cent in 2026.
What is the RBI’s dollar window?
It is a special facility under which the central bank supplies dollars directly to the three state-run oil companies from its foreign exchange reserves, so their large dollar purchases do not pressure the open market.
How low can the rupee go?
The record low is 96.96 per dollar, touched in May 2026. Traders say the RBI is determined to defend that level, but one currency trader quoted by Reuters warned a break past 97 could come quickly if pressures persist.
Will a weak rupee raise prices in India?
Yes. A weaker currency makes imports, especially crude oil, more expensive, which feeds into transport and manufacturing costs and ultimately consumer prices. Headline inflation is already at 4.8 per cent, above the RBI’s 4 per cent target.
Are India’s forex reserves enough?
Reserves stand at $734 billion with about eleven months of import cover, which the RBI governor has described as adequate. But the $51 billion drop in four weeks shows the pace of intervention has been intense.
Informeia will keep tracking the rupee’s moves and the RBI’s response through the coming week.
