Full Breakdown
RBI Deploys Special Dollar Window and Tightens Forex Derivative Rules to Stem Rupee Weakness
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Core Measures Announced
- On October 10, 2026, the Reserve Bank of India (RBI) announced a special foreign-exchange window that will meet the entire daily dollar requirements of Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation starting October 12, 2026, remaining in place until further notice.
- The RBI directed authorised dealers to:
1. Prohibit re-booking any rupee-linked foreign-exchange derivative contract cancelled after the directions were issued.
2. Reduce the threshold for undertaking derivative transactions without proof of underlying exposure from $100 million to $5 million.
3. Introduce a 20 % Foreign Exchange Risk Reserve (FERR) for eligible contracts whose notional value exceeds $2 million.
Background & Context
The rupee has hovered near the 97-per-dollar mark as crude oil prices stayed above $100 per barrel and global bond yields rose. On October 7, 2026, the RBI raised the policy repo rate by 25 basis points to 5.50 %, its first hike in nearly four years, yet the currency closed at 96.73 per dollar on October 9, close to its May low of 96.96. Forex reserves fell by $12.95 billion to $734.60 billion in the week ended October 2, marking a fourth consecutive weekly decline.
Timeline
- Oct 7 – Repo rate increased to 5.50 %; RBI signals “calibrated tightening.”
- Oct 9 – Rupee closes at 96.73; RBI announces special dollar window and derivative curbs (effective Oct 12).
- Oct 12 – Window becomes operational for the three oil marketers.
- Oct 13 – RBI schedules an open-market sale of government securities worth Rs 25,000 crore.
Data & Statistics
- Rupee level: 96.73 USD/INR on Oct 9; record low 96.96 in May.
- Forex reserves: $734.60 billion (week ended Oct 2); down $12.95 billion from the prior week.
- Derivative threshold: reduced to $5 million (? 95 % cut).
- FERR requirement: 20 % cash reserve on contracts > $2 million notional.
Criticism & Opposition
Analysts warn the cash-reserve levy will raise hedging costs for importers and could be passed on to customers. Dilip Parmar, HDFC Securities, noted that while the oil-company window may ease spot-market pressure, “the underlying pressures remain” such as weak capital flows and high oil prices.
Verbatim Quotes
- “It is only in the long run they are able to find the right value,” — Sanjay Malhotra, RBI governor
- “Addressing oil companies' dollar requirements removes one of the largest sources of demand from the FX market, which should help reduce volatility but it will show up in a depletion of reserves,” — Dhiraj Nim, ANZ FX strategist
- “The RBI is looking to curb excessive volatility and speculative positions, while the special dollar window will move part of the oil companies’ demand away from the spot market.” — Dilip Parmar, HDFC Securities
Why It Matters
Diverting the daily dollar demand of the three state-run oil marketers removes a sizable source of foreign-currency outflow from the spot market, which could temper short-term volatility. The cash-reserve requirement adds a direct cost to large hedging transactions, potentially dampening corporate demand for dollars and influencing forward-premium dynamics.
What’s Next
The special dollar window will stay active “until further notice,” and the RBI has signaled readiness to adjust liquidity via open-market operations, including the scheduled bond sale on Oct 13, 2026. Future policy will depend on oil-price shocks and the pace of reserve depletion.
