India’s central bank, the Reserve Bank of India (RBI), announced steps to help stabilise the rupee by diverting state oil companies’ dollar purchases to a dedicated channel and tightening rules on currency-hedging and derivatives trading.
Measures to support the rupee
The RBI opened a separate foreign exchange window for three state oil firms—Indian Oil, Hindustan Petroleum and Bharat Petroleum—to meet their daily dollar needs. The bank provides dollars directly from its foreign exchange reserves to these companies, preventing their demand from impacting the spot market.
Additional measures include imposing a 20 percent currency risk reserve requirement on hedging derivative transactions related to current account items exceeding $2 million. The RBI also cut the limit for derivatives trading without proof of underlying exposure from $100 million to $5 million, applying to all derivative products including exchange-traded futures.
Market impact and context
Despite a recent interest-rate increase, the rupee has lost about 7 percent of its value this year amid high oil prices and weak capital flows. The rupee strengthened roughly 0.6 percent against the dollar on the forward market after the announcement, although trading volume was low.
The approach echoes previous RBI interventions to ease foreign exchange market stress and follows broader policy efforts that generated capital inflows over $140 billion, including encouraging foreign currency deposits and allowing state companies and banks to borrow abroad.
Analyst views and outlook
ANZ Bank analyst Dhiraj Nim said removing the dollar demand of oil companies from the spot market could reduce volatility but may also lead to declines in foreign exchange reserves.
These measures form part of a defensive strategy targeting exchange market stability and the dynamics of foreign exchange reserves amid ongoing pressures on the rupee.
Source: Reserve Bank of India
