RBI steps up rupee defence as currency nears 97 per dollar

what happened

Moneycontrol reports that the Reserve Bank of India has introduced a broad package to ease pressure on the rupee after the currency lost more than 7% against the US dollar in 2026. It touched 96.96 per dollar on Friday, prompting the central bank to act over the weekend.

From October 12, RBI opened a dedicated channel to supply dollars directly to three major state-owned oil marketing companies. The threshold for currency-derivative transactions without proven underlying exposure was cut from $100 million to $5 million, while rebooking cancelled contracts was restricted. Banks must also place with RBI an extra reserve equal to 20% of qualifying foreign-exchange derivatives above $2 million. Emkay Global estimates that hedging costs may rise by about 1.3–1.5% and that Rs 45,000–50,000 crore of banking liquidity could be absorbed.

From October 16, banks will have to meet at least 99% of their required CRR each day, compared with 90% previously. RBI is also scheduled to sell Rs 25,000 crore of government securities on October 13. Economists estimate that the direct dollar facility for oil companies could shift $9–11 billion of monthly demand away from the spot market. Kunal Sodhani of Shinhan Bank India said the October 10, 2026 measures could lead banks to reduce speculative positions and reassess their forward books.

A special FCNR deposit programme launched in June had attracted around $143 billion and added almost $100 billion to India’s foreign-exchange reserves. The support proved temporary: Nomura estimates reserves fell by nearly $43 billion after the scheme ended in early September, while expensive crude and foreign investment outflows continued to weigh on the rupee. Brent was around $103.55 a barrel on October 12, and the EIA’s October outlook puts its average price at $105 in the fourth quarter of 2026. The gap between India’s 10-year bond yield and the US 10-year Treasury yield was about 194 basis points on October 8, close to a 22-year low.

The rupee gained 1% in early trading to 95.77 per dollar, compared with 96.73 at the previous close on Friday, October 9. Economists nevertheless expect the relief to be temporary, with oil prices, export receipts and capital flows remaining key variables. Emkay sees India’s current-account deficit widening to 1.6–1.7% of GDP in FY27 if crude stays near $100 a barrel. It also notes that RBI’s net outstanding short forward position is above $200 billion, making a permanent defence of the rupee around 95 impossible to guarantee. The measures may limit imported inflation, but they are likely to raise currency-hedging costs for companies.

why it matters

The package may reduce immediate dollar demand and rupee liquidity, while high oil prices and capital outflows continue to challenge India’s currency.

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