What RBI has done

The RBI issued two circulars (A.P. (DIR Series) Nos. 25 and 26) and two press releases on October 10. Together they cover five measures.

1. No rebooking of cancelled contracts: From 12th October 2026 onwards, Banks cannot let customers rebook a rupee-linked currency derivative contract once it has been cancelled. Rollovers on maturity are still allowed. One thing to keep in mind is there is no mention about foreign currency linked contracts, they can still be cancelled and rebooked.

2. Lower limit for hedging without proof: Customers could earlier take positions of up to USD 100 million without showing an underlying business exposure. That limit is now USD 5 million. The same cut applies to rupee currency derivatives on stock exchanges.

3. More paperwork: When a customer hedges a contracted exposure, the bank must get a written undertaking that the same exposure has not been hedged with another bank. Banks must keep these records for at least two years.

4. A new cash reserve (FERR): For rupee-linked derivative contracts above USD 2 million, used to hedge current account needs where the customer is buying foreign currency, the bank must park 20% of the contract’s rupee value as cash with the RBI. The reserve is not fixed at the time the contract is booked. Because it is maintained on a daily basis and is linked to the rupee value of the contract, it moves with the exchange rate. If the rupee weakens, the rupee equivalent of a dollar contract rises, and so does the cash the bank has to keep with the RBI. This works somewhat like a margin that is adjusted as the market moves, and it stays in place until the contract ends. Splitting trades to avoid the limit counts as a violation. The new rules apply only to contracts made after October 10.

5. A dollar window for oil companies: From Monday, October 12, the RBI will sell dollars through designated banks to meet the entire daily dollar needs of Indian Oil, HPCL and BPCL. It stays open until further notice.


Why it matters

Oil is India’s biggest import bill, and the oil companies buy dollars every single day. When they bid for dollars in the open market, it can push the rupee down. Taking them out of the market removes a big source of that pressure.

The derivative curbs target a different problem: excess or duplicate hedging and speculation. When people over-hedge, or book and cancel contracts repeatedly, it adds to dollar demand and can feed a panic. The new rules make each hedge cost more and need more proof.


Who is affected

  • Importers will find hedging harder and likely costlier, since banks will pass on the cost of the cash reserve.
  • Banks will have to lock up cash with the RBI, which reduces the money they have to lend.
  • Speculators will find it much harder to take large rupee positions.

These steps are likely to calm the market quickly while USDINR already trading around 95.75 levels, almost a rupee down since the RBI Notification. They shut off the easiest routes to speculation and take a large, predictable buyer out of the market. The rupee may steady, though the curbs treat the symptoms, not the cause. The pressure has majorly come from high crude prices and foreign investor outflows, and neither is addressed by these measures. Genuine importers and exporters now face higher hedging costs and more paperwork. If too much cash is locked in the reserve, banks could face tighter liquidity.

The RBI is spending real money to defend the rupee. Reserves have fallen for four straight weeks, from a record $785.7 billion in the week ended September 4, 2026 to $734.6 billion, a loss of about $51.1 billion. That works out to roughly $13 billion a week. Governor Sanjay Malhotra has said the reserves cover about 11 months of imports and equal 94.4% of external debt.

Those numbers are comfortable, but the headline figure overstates how much firepower the RBI has.

  • Not all of it can be spent. Gold alone is about $106 billion of the total.
  • The RBI has also promised to sell dollars in the future (the buy sell swaps). Its net short forward dollar position hit a record $200 billion at the end of August, with about $176.6 billion maturing beyond one year. This eases near-term pressure but creates obligations for later.
  • The open-ended oil window adds a daily call on reserves for as long as it runs.

These measures will buy time and work best if crude prices ease and foreign money returns. If neither happens, the RBI will have to choose between letting the rupee weaken gradually and drawing down reserves further.

What to watch: The weekly reserves data (the next release is October 16), crude oil prices, foreign investor flows, and whether the oil window is scaled back.

US Inflation and Unemployment Data followed by Fed Chair Kevin Warsh’s speech would further drive the USDINR prices.

Sources: RBI press releases 2026-2027/1305 and 1306; RBI circulars A.P. (DIR Series) No. 25 and No. 26, all dated October 10, 2026. Reserves and forward book figures are from published media reports of RBI data.