RBI Opens Special Dollar Window and Restricts Derivatives to Defend Sliding Rupee

The Reserve Bank of India announced a specialized dollar-supply facility and stringent regulatory checks on foreign exchange derivatives on Saturday, executing its most assertive defense of the domestic currency since 2013. The intervention comes into effect on Monday, October 12, 2026, targeting sustained downward pressure on the Indian rupee as it trades near record lows.

The policy action directly impacts corporate import costs, domestic fuel pricing dynamics, and broader macroeconomic stability across the country. By diverting massive state-backed greenback demand away from the open market, the central bank seeks to eliminate speculative volatility and cushion the currency against mounting external pressures.

Under the new arrangement, the central bank will meet the entire daily foreign exchange requirements of three state-owned petroleum giants: Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation. These enterprises will source their dollar needs through designated commercial lenders operating via the dedicated facility, bypassing open market spot purchases that traditionally strain liquidity.

Alongside the oil window, the monetary authority instituted sweeping constraints on foreign exchange derivatives to curb speculative positioning. Authorized dealers must now enforce a strict prohibition against rebooking any rupee-linked derivative contracts that have been cancelled. Furthermore, the transaction threshold for exchange-traded currency positions lacking underlying exposure has been lowered sharply from $100 million to $5 million.

Commercial banks facilitating qualifying rupee derivative contracts exceeding $2 million are also mandated to maintain a 20 percent foreign exchange risk reserve with the central bank. Financial sector analysts note that this cash reserve requirement raises hedging costs for market participants while tightening overall liquidity in domestic financial channels.

The rupee has faced relentless downward momentum throughout the year, driven by elevated global crude oil prices exceeding $100 per barrel, high United States Treasury yields, and persistent foreign institutional portfolio outflows. Foreign exchange reserves had contracted notably in preceding weeks as authorities attempted to manage the currency depreciation through conventional open market dollar sales.

Immediate market reaction saw the rupee gain ground in offshore trading sessions following the announcement. Treasury desks and corporate treasurers are currently evaluating the operational implications of the new risk reserves and derivative limits as trading resumes for the week.