Rupee opens over 1% higher at 95.73 on RBI measures to curb dollar demand

The Indian rupee opened over 1 per cent higher on Monday after the central bank unveiled efforts over the weekend to curb dollar demand and provide support to the domestic unit, which has been among the worst-performing Asian currencies this year. 

 

The rupee opened at 95.73 against the greenback today compared with Friday's close of 96.76. As of 9.14 AM, it was trading at 95.76, according to Bloomberg data. The rupee has depreciated by over 7 per cent year-on-year and around 6 per cent since the West Asia conflict began on February 28, 2026, amid elevated crude oil prices, a strong dollar, high global bond yields and weak capital flows. The latest measures come as the currency faces renewed pressure near the 97-per-dollar mark. 

The RBI’s latest package is a clear near-term positive for the rupee, said Anindya Banerjee, Head of Commodity and Currency Research, Kotak Neo, as it tackles both a large recurring source of dollar demand and the tendency for expectations of rupee weakness to generate additional hedging demand, which can itself amplify depreciation.

 

 

What are the measures announced by RBI?

Among the measures unveiled by RBI to contain the rupee are a special oil window for daily dollar requirement of oil marketing companies (BPCL, HPCL and IOCL); this dollar demand therefore will not hit the interbank market.

 

Banks are asked to park 20 per cent of notional rupee contract value (Foreign exchange risk Reserve i.e. FERR) with RBI for import contracts. Further, banks will pass on this cost to importers which makes hedging imports more expensive.  

 

RBI also directed banks to scrutinise underlying exposure documentation thoroughly, confirming that the same underlying exposure has not been hedged with any other authorized dealer.

 

The central bank has reduced the threshold for undertaking foreign exchange derivative transactions without establishing underlying exposure to $5 million from $100 million. READ MORE

 

Lastly, banks shall not permit users to rebook any foreign exchange derivative contract involving rupee, whether deliverable or non-deliverable, which has been cancelled with any Authorised Dealer after the issuance of the Directions. This will discourage exporters from booking profits on dips in anticipation of better re-entry levels, said IFA Global.

 

Banejee said this is effectively the third phase of the authorities’ response this year. 

 

The March–April measures constrained banks’ onshore positions and onshore–offshore arbitrage. The subsequent government and RBI initiatives sought to attract capital through tax relief and wider access for foreign investors in government securities, alongside FCNR(B) deposit and external borrowing incentives. The latest measures focus on tightening hedging discipline and relieving pressure on the regular dollar market, he observed.

 

"The special dollar window for public-sector oil marketing companies is particularly significant because it takes their entire daily dollar requirement out of the regular market."

 

With USD/INR around 95.81, our working range remains 94–97, according to the expert. He expects the RBI to remain particularly vigilant on a move back towards 96.50, with the latest measures helping contain pressure around the 96–96.50 zone. This is our assessment of its likely reaction, rather than an officially declared exchange-rate ceiling, he added.

 

"The recent retreat in crude is supportive, but sustained rupee appreciation beyond 94 would require a more durable decline in oil prices and an improvement in capital flows," according to Banerjee.  

Disclaimer: Views and outlook in this report belong to the brokerages and analysts cited. They do not reflect the views of Business Standard. Readers are advised to exercise discretion. 

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