RBI Moves to Support the Rupee: Dollar Window for Oil Companies and Tighter Forex Derivative Rules
On 10 October 2026, the Reserve Bank of India (RBI) announced a package of steps to stop the rupee from falling too fast against the US dollar.
The rupee closed at about ₹96.73 per dollar on 9 October 2026. This was very close to its all-time low of ₹96.96, touched in May 2026.
Dollar window for oil companies: From 12 October 2026, the RBI will supply the full daily dollar needs of three public sector oil marketing companies (Indian Oil, Bharat Petroleum and Hindustan Petroleum) directly from its foreign exchange reserves, through designated banks. This takes their huge dollar demand out of the open market.
Tighter forex derivative rules: Users can no longer "rebook" a rupee forex derivative contract (deliverable or non-deliverable) once it has been cancelled. Rolling over a contract on maturity is still allowed.
Lower limit and a new reserve: The limit for taking currency derivative positions without proof of a real (underlying) exposure was cut from $100 million to $5 million, including on exchanges. Banks must also keep a Foreign Exchange Risk Reserve with the RBI equal to 20% of the rupee value of eligible large contracts (above $2 million) in which users buy foreign currency against the rupee.
The steps came days after the Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% on 7 October 2026. India's forex reserves fell by $12.95 billion to $734.60 billion in the week ended 2 October 2026, about $51 billion below the September record of $785.70 billion.
Exchange Rate Management in India: RBI's Managed Float
India's exchange rate is the price of the rupee in other currencies, for example how many rupees one US dollar costs. This price is mostly set by the market, through the demand for and supply of dollars. But the RBI steps in when the rupee moves too sharply, by selling or buying dollars from its reserves. This mix of market freedom and RBI control is called a managed float. The RBI does not defend any fixed rate; it only tries to stop sudden, disorderly swings (volatility).
With the rupee close to its record low, the RBI used two classic managed-float tools together: it moved the oil companies' large dollar buying off the market and onto its own reserves, and it made speculative dollar buying costlier. Both reduce dollar demand in the market without fixing any exchange rate.
Currency Hedging and the Forward Premium
Currency hedging means protecting yourself against a sudden change in the exchange rate. A company that will need dollars in the future (an importer) can fix the rate today through a contract called a forward or another currency derivative. The extra price paid to buy dollars in the future, compared with today's (spot) price, is called the forward premium. The RBI's rules allow such contracts mainly to protect against a real business risk, not to bet on the rupee's direction.
When people expect the rupee to fall, importers and traders rush to buy dollars forward, which itself pushes the rupee down. The new rules make it harder and costlier to buy dollars forward without a real need, so the forward premium and speculative dollar demand should both come down.
Real Effective Exchange Rate (REER)
The Real Effective Exchange Rate, or REER, tells us how strong or weak the rupee really is against the currencies of all of India's main trading partners together, after adjusting for differences in price rise (inflation). It is shown as an index number, with a chosen base year set at 100. When the REER goes up, the rupee has become stronger in real terms, and Indian goods become costlier for the world. When it goes down, the rupee has become weaker in real terms, and Indian goods become cheaper for foreigners.
The RBI has said the rupee is already undervalued on a REER basis, meaning it has fallen more than inflation differences can justify. This is one reason the RBI is trying to slow the rupee's fall now: further weakness would make imports such as oil much costlier and add to inflation, without a clear competitiveness need for it.
- Rupee close on 9 October 2026: about ₹96.73 per dollar; all-time low: ₹96.96 (May 2026)
- Dollar window for IOC, BPCL and HPCL: from 12 October 2026, until further notice
- Limit for derivative positions without proof of underlying exposure: cut from $100 million to $5 million
- Foreign Exchange Risk Reserve: 20% of rupee value of eligible contracts above $2 million
- Rebooking of cancelled rupee forex derivatives barred; rollover on maturity allowed
- Repo rate raised by 25 basis points to 5.50% on 7 October 2026; SDF 5.25%, MSF and Bank Rate 5.75%
- Forex reserves: $734.60 billion (week ended 2 October 2026), down $12.95 billion; record $785.70 billion (September 2026)
- Similar oil company forex swap window was used in August 2013
- India's market-determined exchange rate since March 1993