The RBI has announced two sets of measures to curb rupee depreciation | Photo Credit: VIVEK PRAKASH

The Reserve Bank of India’s weekend moves — to contain demand for dollars and curb speculative dollar-rupee positions — betray a strange sense of nervousness over the rupee’s trajectory. Oddly enough, they have come just days after the MPC meeting that decided to raise policy rates by 25 basis points. For a central bank which has always maintained that it is not targeting any level of the rupee but is only concerned about keeping volatility in check, RBI’s actions suggest the contrary. Such muddled messaging could send wrong signals — of vulnerability, despite macros being sound. It is to be hoped that speculators are not emboldened.

The trigger seems to have been the pressure on the rupee last week, owing to Brent crude oil prices moving above $100 a barrel and the US treasury bond yields spiking above 5.2 per cent. The RBI has announced two sets of measures to curb rupee depreciation. The first set, meant to curb currency speculation, is aimed at preventing transmission of prices from the offshore non-deliverable forward market to domestic markets. These include disallowing re-booking of cancelled rupee derivative contracts and reducing the limit for taking hedging positions in rupee derivative contracts in the domestic market without showing an underlying exposure — to $5 million from the existing $100 million. It may be recalled that the RBI had capped this limit at $100 million in March this year, when the rupee was under pressure due to the onset of the US-Iran war. By slashing the limit to $5 million, the central bank is clamping down strongly on the trading positions of banks. For contracts exceeding $2 million, the RBI has asked banks to maintain 20 per cent of the notional value in a foreign exchange risk reserve.

The other significant measure is a special window for sale of dollars directly to oil marketing companies to meet their daily requirements. This move appears aimed at cooling the spot dollar-rupee market. The RBI had announced a similar window in August 2013, following the taper tantrum. But the central bank had supplied dollars through dollar/rupee swaps then, and the window had been kept open for three months. While the central bank has not outlined how it intends to manage the payment this year, given the robust forex reserves of $735 billion, it may not have trouble meeting the daily demand from oil marketing companies, which ranges between $250-300 million. However, managing genuine demand and supply forces in determining the rupee’s value may create unforeseen distortions.

The appreciation of over 1 per cent in the dollar-rupee exchange rate on Monday shows that the currency has got a temporary reprieve. The move to curb banks’ speculative positions by 95 per cent and requiring them to set aside 20 per cent of their positions, will help. So will concerted moves to drain out liquidity surplus. But while the rupee can appreciate in the near term, the long-term pressure on the currency is likely to continue as long as geopolitical factors exert upward pressure on crude oil prices and portfolio outflows continue.

Published on October 12, 2026