Indian Rupee Gains 1% After RBI Announces Currency Support Measures

what happened

The Indian rupee strengthened 1% to 95.7575 per US dollar, recording its largest one-day advance since April. Businessworld reported that the move followed the Reserve Bank of India’s (RBI) measures to contain pressure on the currency. The rupee had been nearing a record low of 97 per dollar before the central bank announced the steps on Saturday. One-month dollar-rupee non-deliverable forwards had earlier fallen as much as 0.8% during Monday’s session.

The RBI package includes a special facility for the US dollar needs of state-run oil companies and a reserve requirement covering selected foreign-exchange derivatives. Lenders must keep with the RBI the rupee equivalent of 20% of the notional value of each qualifying transaction above USD 2 million. The rule is intended to curb speculative positions and make hedging more expensive. The People’s Bank of China uses a comparable mechanism to manage pressure on the yuan through forward-contract reserve requirements.

The benchmark 10-year government bond yield rose five basis points to 7.35%, its highest level since November 2023. Madhavi Arora, lead economist at Emkay Global Financial Services, called the measures tactical rather than structural. The rupee is down 7% this year. Foreign-exchange reserves fell USD 51 billion over the past four weeks after reaching nearly USD 800 billion in early September; the diaspora deposit programme attracted a record USD 133 billion.

why it matters

The RBI’s steps supported the rupee after it approached a record low, while the bond-market reaction showed renewed pressure on yields. The new rule may restrain derivatives activity and raise hedging costs, as falling reserves underline the cost of defending the currency.

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