The Reserve Bank of India has announced several measures to support the rupee, including a special arrangement to meet the daily US dollar requirements of three public-sector oil marketing companies. The central bank has also tightened rules covering foreign currency derivatives, reserve risk and currency hedging.

Under the new arrangement, dollars will be supplied through designated banks to Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. The facility will take effect on Monday, 12 October 2026, and remain available until further notice.

The purpose is to help the three companies meet their daily foreign currency needs for operations. The RBI has not disclosed the amount of foreign currency that will be supplied through the arrangement or specified a limit for individual transactions.

Why the dollar window matters

Oil distribution companies require US dollars to pay for crude oil imports and other overseas expenses. International crude oil trade is mainly conducted in dollars, so movements in the rupee-dollar exchange rate can affect import costs and the companies' financial requirements.

The measure comes as the rupee remains close to its record low against the US dollar despite the central bank's intervention in the foreign exchange market and higher interest rates. The rupee closed at 96.73 per dollar on Friday, near its all-time low of 96.96 recorded in May.

The RBI's announcement did not specify how long the special facility would operate beyond stating that it would continue until further notice. It also did not provide details of the total dollar supply or the transaction-level ceiling.

Derivative limit reduced

The central bank has reduced the limit for certain foreign currency derivative transactions from 100 million dollars to 5 million dollars. The revised ceiling also applies to rupee-linked exchange-traded currency derivatives on recognised stock exchanges.

The stated aim is to ensure that large derivative positions are linked to genuine needs, such as import payments or export support, rather than being used mainly for speculation. The change is part of a wider effort to address speculative demand and improve conditions in the currency market.

The RBI has also introduced a foreign exchange risk reserve requirement for eligible rupee-linked foreign currency derivative contracts with a notional value above 20 lakh dollars. Registered dealers must maintain a cash reserve with the RBI equal to 20% of the rupee value of each eligible transaction.

This requirement applies to contracts used to hedge current-account risks where users purchase foreign currency against the rupee. The measure adds a reserve obligation to a category of transactions involving foreign exchange exposure.

Tighter hedging documentation

Registered dealers must obtain and retain an undertaking from users entering foreign exchange derivative contracts. The undertaking must confirm that the same risk has not been hedged through another dealer.

The requirement is intended to prevent duplicate hedging of the same exposure and support better functioning of the market. It places a documentation responsibility on registered dealers and requires users to confirm how the relevant risk is being managed.

What could influence the rupee

The measures may reduce speculative demand for dollars and provide relief from short-term volatility, according to the information accompanying the announcement. The rupee's broader performance will also depend on crude oil prices, foreign investment flows and global movements in the dollar.

India's foreign exchange reserves fell by 12.95 billion dollars to 734.60 billion dollars in the week ended 2 October. It was the fourth consecutive weekly decline in the reserves.

Conclusion

The RBI has combined direct dollar access for 3 state-owned oil companies with tighter derivative limits, a reserve requirement and stronger hedging documentation. The measures are intended to support genuine foreign currency needs and address speculative activity while the rupee remains near its record low.

Frequently Asked Questions

Q. Which companies can use the special dollar window?

Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation can receive dollars through designated banks.

Q. When will the dollar facility begin?

The facility will take effect on Monday, 12 October 2026, and continue until further notice.

Q. What is the new limit for certain foreign currency derivatives?

The limit has been reduced from 100 million dollars to 5 million dollars.

Q. What reserve requirement has the RBI introduced?

Registered dealers must maintain a cash reserve equal to 20% of the rupee value of each eligible transaction covered by the new requirement.

Q. Which contracts face the reserve requirement?

It applies to eligible rupee-linked foreign currency derivative contracts with a notional value above 20 lakh dollars that are used to hedge current-account risks.

Q. What must users confirm when entering a hedging contract?

Users must provide an undertaking confirming that the same risk has not been hedged through another dealer.

Q. What was the rupee's latest reported closing level?

The rupee closed at 96.73 per dollar on Friday, near its all-time low of 96.96 recorded in May.

Q. How much did foreign exchange reserves fall?

Reserves fell by 12.95 billion dollars to 734.60 billion dollars in the week ended 2 October.