The Reserve Bank of India (RBI) has announced several measures aimed at supporting the rupee, which is trading near an all-time low. Among these measures is the creation of a special window to meet the dollar demand of three state-owned oil marketing companies (OMCs).
According to a press release published on Saturday, the RBI decided to open a special channel to cover the daily dollar needs of three state-owned oil marketing companies, based on an assessment of the current market situation.
Under this program, the RBI will sell dollars to state-owned OMCs through authorized banks. This measure will come into effect on October 12, 2026, and will remain in force until further notice from the central bank.
Regulatory changes in the foreign exchange market
Furthermore, the central bank introduced regulatory provisions for the foreign exchange market and restricted the possibility of rebooking cancelled contracts for foreign currency derivative financial instruments. The RBI stipulated that authorized dealers must not allow users to rebook any contract for a foreign currency derivative instrument linked to INR, whether supplied or non-supplied, that was cancelled by any authorized dealer after the issuance of Directives.
However, the extension of the validity period for foreign currency derivative contracts after expiration remains permitted. The RBI also significantly lowered the threshold for conducting transactions with foreign currency derivatives without underlying risk, reducing it from $100 million to $5 million.
The central bank also introduced a Foreign Exchange Risk Reserve (FERR), obligating currency dealers to maintain a reserve of 20 percent of the nominal amount of each corresponding derivative transaction involving the rupee. This FERR will apply to foreign currency derivative contracts entered into to hedge current account risks when a user purchases foreign currency for rupees.
The central bank stated that all these steps are intended to strengthen market discipline and ensure proper risk management in the foreign exchange market while maintaining an orderly and transparent market environment.
The Indian currency has been under pressure since the conflict in the Middle East in late February, losing 6 percent of its value. Over the past year, the rupee has depreciated by more than 8 percent. The central bank has actively intervened in the foreign exchange market to curb volatility. It is worth noting that India's foreign exchange reserves decreased by approximately $51.1 billion over four weeks ending October 2, after reaching a record high of $785.7 billion in the week ending September 4.