RBI steps in to support rupee as forex reserves dip $52bn in a month

Inflation has stayed above the Reserve Bank of India’s (RBI) target of 4% for the past three months (Photo: Reuters).

MUMBAI: With forex reserves dipping almost $52 billion from $785.7 billion on Sept 4 to $734 billion on Oct 2, Reserve Bank of India Saturday announced a slew of measures to prevent unidirectional bets against the rupee and reduce demand for dollars. RBI said it would sell dollars directly to IndianOil, HPCL and BPCL to meet their crude import needs, as part of measures to curb rupee volatility. It also imposed a 20% Foreign Exchange Risk Reserve on banks for dollar purchases exceeding $2 million. Further, banks must seek additional documentation of underlying exposure before extending rupee derivative contracts to clients. The rupee's decline was stemmed by a record $127 billion mobilisation of FCNR(B) deposits. But the currency has depreciated nearly 40 paise during Oct to 96.73, roiled by the west Asia crisis.

Measures bar traders from rebooking nixed contracts RBI Saturday tightened rules on forex derivatives in a bid to curb speculative positions, duplicate hedging and aggressive dollar buying. The measures bar traders from rebooking cancelled contracts, cut the limit for trading without proof of underlying exposure from $100 million to $5 million, and require undertakings against duplicate hedging. The rupee has faced pressure from rising crude oil prices, foreign investor outflows from Indian equities and bonds, higher US treasury yields and a stronger dollar amid global risk aversion. Other measures include a targeted dollar-sale window for the three state-run oil marketing companies, the first since Aug 2013, when RBI opened a forex swap window to meet their entire daily dollar needs during the "taper tantrum". The companies then required around $8 billion to $8.5 billion a month for crude imports. Unlike the earlier arrangement, which involved RBI buying back dollars at a future date, the new facility involves direct sales and will also drain rupee liquidity from the money markets. The intervention aims to divert predictable oil-import demand from the open market, where it can amplify pressure from corporate and portfolio outflows. India's crude import bill fell to $121.8 billion in FY26 from $137.2 billion in FY25, despite crude imports rising marginally to 245.3 million tonnes. Different trade classifications put crude petroleum imports at $134.7 billion and the net oil and gas import bill at $117.5 billion.