By Kimberley Kao
The Indian rupee strengthened by the most in months after the central bank took strong measures to bolster a currency that has been hovering near record lows, pressured by foreign capital outflows and high energy prices.
The U.S. dollar was last down about 0.8% at 95.76 rupees on Monday, on track for its largest daily loss since early June, according to FactSet.
The Reserve Bank of India unveiled several measures over the weekend to arrest a slide in the rupee, which has depreciated about 6.5% against the dollar this year. The moves include a special window to meet the dollar needs of three oil companies--Indian Oil, Hindustan Petroleum and Bharat Petroleum--to divert the firms' demand away from the forex spot market.
The central bank also tightened rules around rupee-linked foreign exchange derivative contracts, and introduced a 20% cash reserve requirement for banks, applicable to derivative contracts used to purchase foreign currency against the rupee to hedge current account transactions. The latter applies to transactions with a notional value exceeding $2 million.
Unlike the RBI's rate hike, the latest steps directly target spot U.S. dollar demand and derivative positioning, potentially providing more immediate relief for the rupee, OCBC Group Research strategists said in a report.
However, supplying U.S. dollars to oil companies still draws on reserves, while tighter derivative rules may also affect genuine hedging activity, they said.
"There may be scope for a near-term rupee rebound, but we remain cautious given elevated oil prices, high U.S. Treasury yields and persistent portfolio outflows," the strategists wrote.
Vishnu Varathan, managing director at Mizuho Securities Singapore, said the new foreign exchange risk reserve makes it "prohibitively expensive to mount a speculative attack on the rupee."
Taken alongside RBI Gov. Sanjay Malhotra's comments that the rupee is undervalued, the message to steer clear of attempts to push rupee weakness further to 97-98 versus the dollar is hard to miss, he wrote.
Write to Kimberley Kao at kimberley.kao@wsj.com
(END) Dow Jones Newswires
October 12, 2026 03:13 ET (07:13 GMT)
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