From Oil Imports To Forex Trades: How RBI Is Trying To Ease Pressure On The Rupee

The Reserve Bank of India has stepped up its Defence of the rupee with a special dollar window for three state-run oil companies, tighter foreign-exchange derivative rules and measures to absorb excess rupee liquidity. The rupee responded by strengthening nearly 1 per cent at Monday’s open.

The Reserve Bank of India (RBI) has moved more aggressively to ease pressure on the rupee after the currency came close to its record low against the US dollar. The latest measures were announced over the weekend and the most important one — the special dollar window for oil companies — became effective on Monday, October 12. The rupee opened at 95.76 per US dollar on Monday, compared with Friday’s close of 96.73, marking a gain of around 1 per cent.

The currency had fallen to within striking distance of its all-time low of 96.96 last week and remains down around 6.6 per cent in 2026. The RBI’s latest actions are aimed at two immediate sources of pressure: the large dollar requirements of oil importers and rising demand from companies seeking protection against further rupee depreciation.

RBI Opens Special Dollar Window for Three Oil Companies

The biggest and most direct step is a special foreign-exchange window for Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

From October 12, the RBI will meet the entire daily dollar requirements of these three public-sector oil marketing companies through designated banks. The facility will continue until further notice. This is significant because oil companies are among India’s most regular buyers of US dollars. They need dollars to pay for crude oil and other petroleum imports.

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Normally, those purchases are made through the foreign-exchange market, adding to demand for dollars and putting pressure on the rupee. Under the new arrangement, the RBI itself will supply the dollars to the three companies through designated banks. In effect, a large chunk of their regular dollar demand is being moved away from the open spot market. The RBI has not disclosed the exact amount it expects to supply each day.

However, reports indicate that the combined daily dollar requirement of the three oil companies is around USD 200 million. That figure gives some idea of why the measure matters. Even without eliminating the underlying need for dollars, taking this recurring demand out of the market can reduce the immediate pressure on the rupee.

Why Oil Imports Have Become a Problem

Crude oil prices have moved sharply higher amid geopolitical tensions, with Brent crude still trading above USD 100 a barrel. Higher oil prices mean Indian importers need more dollars, while the country’s overall import bill also increases. For the rupee, this creates a difficult combination. Oil companies need more foreign currency, while foreign investors have also been selling Indian assets. The result is sustained demand for dollars at a time when the rupee is already weak. The RBI is therefore trying to deal with the problem at its source rather than relying only on selling dollars in the open market.

RBI Tightens Rules on Forex Derivatives

The central bank has also made significant changes to the foreign-exchange derivatives market. One of the most important changes is that authorised dealers can no longer allow users to rebook a rupee-linked foreign-exchange derivative after it has been cancelled with an authorised dealer. Rollover of a contract when it reaches maturity continues to be allowed, subject to existing regulations. The RBI has also reduced the threshold for taking certain foreign-exchange derivative positions without establishing an underlying exposure from USD 100 million to USD 5 million.

The new USD 5 million threshold applies across authorised dealers for specified contracted-exposure hedging positions. A corresponding USD 5 million threshold now applies across recognised stock exchanges for INR-involving currency derivatives. The intention is to make it harder to build very large currency positions without demonstrating a genuine underlying foreign-exchange requirement.

A New 20 Per Cent Reserve Requirement

The RBI has gone a step further by introducing a Foreign Exchange Risk Reserve (FERR). Under the new framework, authorised dealers must maintain a cash reserve with the RBI equal to 20 per cent of the rupee equivalent of the notional amount of qualifying INR-linked foreign-exchange derivative contracts exceeding USD 2 million. Importantly, this does not apply to every foreign-exchange derivative.

The requirement covers INR-linked contracts used to hedge current-account transactions where the user is purchasing foreign currency against the rupee. This distinction is important because the USD 2 million and USD 5 million thresholds apply to different rules. The USD 2 million threshold relates to the FERR requirement, while USD 5 million is the revised threshold for certain derivative positions without establishing an underlying exposure.

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Hedging the Rupee Has Now Become More Expensive

The immediate consequence for importers and other businesses is that some forms of currency hedging are likely to become more expensive. Bankers estimate that the new rules could increase hedging costs by around 80 to 150 basis points, depending on how much of the additional cost banks pass on to their customers. That may discourage companies from aggressively buying forward dollars purely because they expect the rupee to weaken further.

There is also a compliance angle. Companies entering into qualifying contracted hedges must provide an undertaking confirming that the same underlying exposure has not already been hedged through another authorised dealer. This is intended to prevent the same exposure from being hedged multiple times.

The USD 100 Million Limit Has Been Cut to USD 5 Million

The RBI has sharply reduced the threshold for foreign-exchange derivative transactions that can be undertaken without establishing the existence of an underlying exposure. The limit has been reduced from USD 100 million to USD 5 million, across derivative products.

This is significant because it makes it harder for market participants to build large derivative positions without demonstrating an underlying foreign-exchange requirement. The objective is not simply to restrict genuine hedging. The broader aim is to reduce excessive positioning and prevent derivative transactions from adding to one-way pressure on the rupee.

RBI Is Also Tightening Rupee Liquidity

The currency measures come alongside a broader tightening of domestic liquidity. The RBI has raised the minimum daily CRR maintenance requirement from 90 per cent to 99 per cent of the prescribed requirement, effective from the fortnight beginning October 16. The overall CRR ratio itself has not been changed. The change reduces the flexibility banks have to maintain lower CRR balances on individual days and compensate later during the reporting fortnight.

The RBI has also announced an open market operation sale of government securities worth Rs 25,000 crore on October 13. The sale is intended to absorb surplus liquidity from the banking system. The RBI had already sold Rs 1 lakh crore of government securities through OMO operations in September. These steps are not direct foreign-exchange interventions, but they are part of the RBI’s broader effort to tighten rupee liquidity and bring short-term money-market conditions closer to its new policy stance.

RBI Had Already Raised Rates Last Week

The latest currency measures also come just days after the RBI raised interest rates. On October 7, the central bank increased the repo rate by 25 basis points to 5.50 per cent, its first rate increase since February 2023. It also changed its policy stance from neutral to calibrated tightening, citing evolving inflation and financial-market conditions.

The rate increase was another attempt to strengthen the monetary backdrop for the rupee, but the currency remained under pressure afterwards. The latest measures are different in nature. Instead of relying mainly on higher interest rates, the RBI is now directly targeting some of the biggest sources of dollar demand and speculative positioning.

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