RBI’s plan to stop the rupee’s decline:Special dollar window opened for state-run oil companies, forex derivatives trading rules tightened

RBI has taken two decisions to support the Indian rupee, which has been continuously weakening against the dollar, and curb volatility in the money market. RBI has launched a ‘special dollar window’ to meet the daily dollar requirements of government-owned oil companies. In addition, the Reserve Bank of India has tightened rules related to forex derivatives trading. Market experts believe these measures will provide some immediate relief to the rupee, but reversing the prolonged downward trend completely will be difficult. Rupee has fallen 7% so far in 2026 On Friday, 9 October, the rupee closed at 96.73 against the dollar, close to its all-time low of 96.96 recorded in May. So far in calendar year 2026, the rupee has fallen by more than 7%, and by around 3.5% in the current financial year (FY27). High crude oil prices, a strong dollar and sluggish foreign investment have kept the rupee under sustained pressure. RBI wants to prevent the rupee from crossing 97 The RBI wants to prevent the rupee from weakening past the ₹97-per-dollar level. If the rupee crosses this level, panic buying of dollars by companies and speculative short positions could rise sharply. In view of this, whenever the rupee moves past 96.80, dollars are being sold through state-owned banks. Oil window will ease pressure on the spot market Crude oil accounts for around 25% of India’s total imports. The oil companies’ daily dollar requirements will now be met directly from the RBI’s foreign exchange reserves through a ‘special window’. This will reduce the pressure from direct demand for dollars in the spot forex market. The treasury head of a private bank said the oil window would reduce demand in the spot market. At the same time, restricting derivatives without any underlying exposure would curb speculative trades. However, India’s balance of payments remains weak, the dollar is strong and global bond yields are high. As a result, the rupee may remain under pressure for some time, that is, in the medium term. Dilip Parmar, research analyst at HDFC Securities, said these decisions would curb volatility and deal a blow to speculators. However, banks may pass on the burden of their additional hedging costs to customers. Four major changes to forex derivatives rules To curb speculation and bring discipline to the market, the RBI introduced four major changes on 10 October… Foreign exchange reserves fall by $31.3 billion in two weeks The fall in the rupee came at a time when India’s forex reserves were continuing to decline. In the week ended 25 September, reserves fell by $18.34 billion to $757.46 billion. In the week ended 2 October, they fell by a further $12.95 billion to $734.61 billion. Forex reserves have fallen by a total of $31.3 billion in two weeks. They are now around $51.1 billion below the record all-time high of $785.7 billion recorded in the first week of September. At the monetary policy press conference on 7 October, RBI Governor Sanjay Malhotra said that the rupee could be “undervalued” based on the real effective exchange rate (REER). However, the Reserve Bank will ensure that stability is maintained in the currency. RBI to sell government bonds worth ₹25,000 crore The RBI has taken two major decisions to reduce excess liquidity from the market… The RBI will sell government bonds worth ₹25,000 crore through an open market operation (OMO) on 13 October, moving cash from the market to banks. The move could lead to a rise of 4 to 5 basis points (0.04%-0.05%) in bond yields. From 16 October, banks will be required to maintain at least 99% of their total cash reserve ratio, or CRR, every day, up from 90%. However, there has been no change in the main CRR rate; banks will now have to keep more cash set aside with themselves every day. What are OMO sales, CRR and REER? 1. Open Market Operation (OMO) sales: A way to manage inflation and the rupee When too much cash starts circulating in the market, the RBI sells government bonds to draw that excess money away from banks. Impact on the common man: Less cash in the market helps curb inflation and prevent a sudden sharp fall or fluctuations in the Indian rupee against foreign currencies. 2. Cash Reserve Ratio (CRR): Tightening the screws on banks’ leeway Banks are required to keep a fixed portion of their total deposits in cash with the RBI. Under the new rules (99% daily maintenance, compared with just 90% earlier), banks will now have to meet this quota every day. Impact on the common person: Banks will have to manage their daily liquidity (cash funds) very carefully. This will end their freedom to use cash at will or take major risks on a daily basis. 3. Real Effective Exchange Rate (REER): The gauge of the rupee’s real strength This is an index or measure that shows how strong or weak the Indian rupee actually is against the currencies of the country’s major trading partners, such as the dollar, euro and yuan. Impact on the common person: It indicates the health of the country’s imports and exports. If the rupee is stronger according to the REER, importing goods from abroad becomes cheaper, while selling goods from the country overseas becomes more expensive.