India’s central bank is reaching for the emergency toolkit. With the rupee hovering dangerously close to its all-time low, the Reserve Bank of India on Saturday rolled out a package of dollar curbs aimed at steadying the currency, and the flagship measure takes effect today.
Starting Monday, the RBI will meet the daily dollar requirements of three state-run oil marketing companies directly from its foreign exchange reserves. Indian Oil, Hindustan Petroleum and Bharat Petroleum, which buy billions of dollars worth of crude every month, will no longer have to shop for dollars in the open spot market.
The move pulls one of the biggest single sources of dollar demand out of the foreign exchange market at a stroke. It is a familiar playbook: the central bank used a similar arrangement back in 2013, when the rupee was battered during the global “taper tantrum.”
What the RBI announced
The measures, announced over the weekend, go well beyond the oil company window. The central bank also tightened rules on foreign exchange derivatives to choke off speculative pressure against the rupee:
- Special dollar window for oil companies: The RBI will supply dollars directly to the three oil marketing companies, effective October 12, easing demand in the spot market.
- No more cancel-and-rebook: Traders will no longer be allowed to cancel and rebook certain rupee-denominated derivative contracts, though contracts can be extended when they mature.
- Position limit slashed: The limit for taking derivative positions without proving an underlying business need has been cut from $100 million to $5 million.
- Cash reserve rule: Banks handling certain foreign exchange derivative contracts involving dollar purchases above $2 million will have to park 20 per cent of the contract value as cash reserves with the RBI every day until the contract ends.
Why the rupee is under pressure
The rupee closed Friday at 96.73 to the US dollar, within touching distance of its record low of 96.96 touched in May this year. It has lost more than 7 per cent in 2026, making it one of Asia’s weakest performers.
The pressure comes from several directions at once. Crude oil, which India imports in vast quantities, has been hovering above $100 a barrel. US bond yields are near multi-year peaks, pulling foreign money out of emerging markets. And a deficient monsoon, shaped by El Nino conditions, has pushed up food prices at home, adding to the RBI’s inflation headache.
The RBI has been spending heavily to slow the fall. India’s foreign exchange reserves dropped for a fourth straight week to $734 billion in the week ended October 2, down from a record $785 billion in early September. That is a drawdown of roughly $51 billion in a single month.
Will it work?
Analysts say the weekend measures should bring near-term relief but are unlikely to reverse the rupee’s broader slide. After the announcement, the rupee strengthened by about 0.6 per cent in the non-deliverable forward market, though trading was thin over the weekend.
The measures are expected to reduce near-term pressure on both the spot rate and forward premiums, according to market watchers, but the underlying drivers, elevated oil prices, high global yields and persistent foreign fund outflows, remain in place.
There is also a cost: every dollar the RBI hands to oil companies comes straight out of its reserves, which are already being depleted by regular market intervention. Import cover still stands at roughly 11 months, which is comfortable, but the pace of the decline will be watched closely.
The bigger picture
The rupee defence is the second major intervention by the central bank in a week. On October 7, the RBI raised its benchmark repo rate by 25 basis points to 5.50 per cent, the first hike in nearly four years, citing rising inflation that climbed to 4.8 per cent in August.
September’s inflation numbers land today, and economists expect them to come in even hotter, possibly near 5.5 per cent on the back of surging onion and vegetable prices. For households, the combination is a double squeeze: costlier food and a weaker currency that pushes up the price of everything India imports.
For now, all eyes are on the currency desks this morning. If the RBI’s special window works as intended, the spot market should feel some breathing room. But with crude still volatile and global yields staying high, this weekend’s package looks less like a cure and more like a well-aimed painkiller.
FAQs
Why did the RBI announce dollar curbs?
The rupee is trading close to its record low against the US dollar, pressured by high crude oil prices, elevated global bond yields and foreign fund outflows. The measures aim to reduce dollar demand and curb speculative trading.
What is the special dollar window for oil companies?
From October 12, the RBI will meet the daily dollar requirements of Indian Oil, Hindustan Petroleum and Bharat Petroleum directly from its foreign exchange reserves, instead of letting them buy dollars in the open spot market.
How will these measures affect common people?
A steadier rupee helps contain the prices of imported goods, especially fuel. But if pressure continues, the currency’s weakness could feed into higher inflation and costlier loans.
Has India done this before?
Yes. The RBI opened a similar dollar window for oil companies in 2013, when the rupee came under severe pressure during the global “taper tantrum.”
What are analysts saying?
Market watchers expect the measures to ease pressure on the rupee in the near term, but say they are unlikely to reverse the currency’s broader weakening trend unless global conditions improve.
India’s currency battle is far from over, but this weekend the central bank showed it is prepared to fight on multiple fronts. The coming weeks will show whether the rupee finds its footing or slips to a fresh record low.
