Rupee near record low: the RBI curbs hedging and sells dollars to oil firms

With the rupee near a record low, the Reserve Bank of India moved on Saturday to stop it falling further. This time it went after the demand for dollars itself: it made hedging against a weaker rupee harder and more expensive, and it will supply the dollars that India’s three state oil companies need to pay for crude.

The measures came in two circulars, the RBI said, “to ensure orderly functioning of the foreign exchange market”. They follow the RBI’s first rate rise since 2023, which we covered on 7 October.

How far the rupee has fallen

The rupee’s official reference rate was 95.99 per dollar on 1 October, the latest on the site of Financial Benchmarks India, which sets it. A year earlier, on 10 October 2025, it was 88.69. That is a fall of 7.6% in the rupee’s value against the dollar. The record low on the reference rate is 96.84, set on 20 May 2026.

Fall in the rupee against the dollar since 10 October 2025, %. Source: Financial Benchmarks India reference rates, end of month. October 2026 is 1 October, the latest rate published.

Oct 2025	0.0
Dec 2025	1.4
Feb 2026	2.5
Mar 2026	6.3
May 2026	7.0
Jul 2026	7.0
Sep 2026	7.6
1 Oct 2026	7.6

Source: Financial Benchmarks India reference rates, end of month. October 2026 is 1 October, the latest rate published.The Macro Notebook

About half of the fall came in March, when the rupee lost about 4% in a single month. Oil is a large part of the pressure. The Indian basket of crude cost $116.1 a barrel in September, up from $82.0 in July, Governor Sanjay Malhotra’s statement of 7 October shows. Every rise in the oil price means more rupees sold for dollars.

What the RBI changed

The rules target companies that buy forward contracts and other derivatives to lock in an exchange rate. When many importers expect a weaker rupee, they all rush to buy dollars forward at once, and that pushes the rupee down further.

There are four changes:

• A lower limit. Until now, a company could hedge up to $100m of exposure without showing the bank the trade behind it. The limit is now $5m, across all banks. The same cut applies on India’s stock exchanges.
• No rebooking. A company that cancels a rupee derivative contract cannot book it again. Contracts can still be rolled over when they mature.
• One hedge per exposure. Companies must sign an undertaking that they have not hedged the same trade with another bank.
• A cash reserve. On contracts above $2m where the company buys foreign currency to cover current-account payments, such as imports, banks must keep 20% of the rupee value of the contract with the RBI in cash. The RBI calls it a Foreign Exchange Risk Reserve.

The last change is the strongest. A bank that has to park a fifth of each contract’s value at the central bank is likely to pass that cost to its customers. That makes it more expensive to bet on the rupee falling.

Dollars for the oil companies

The second step deals with some of the biggest buyers of dollars. From today, the RBI will meet “the entire daily dollar requirements” of Indian Oil, Hindustan Petroleum and Bharat Petroleum, the central bank said. It will sell them dollars through designated banks, until further notice.

This takes a large, steady demand for dollars out of the market. The oil companies no longer need to buy dollars from banks each morning, so their purchases no longer push the rupee down. The cost falls on the RBI’s reserves instead.

Can the RBI afford it?

India has a large buffer. Foreign exchange reserves stood at $734.6bn on 2 October, enough for about 11 months of imports, the governor’s statement shows. Net inflows into non-resident deposits reached $119.2bn from April to August, against $5.6bn a year earlier.

But the trade gap is widening. The merchandise trade deficit was $58.7bn in July and August, up from $55.1bn a year earlier, as imports of crude oil and electronic goods grew. As long as oil stays above $100 a barrel, the oil window will draw on the reserves every day.

What to watch next

The first test comes today, as the rules and the oil window take effect. Watch the reference rate against the May record of 96.84, and the RBI’s weekly reserve figures, published on Fridays, for the cost of the oil window. The minutes of the October policy meeting are due on 21 October and may show how worried the committee is about the rupee. The next rate decision follows the meeting of 2 to 4 December.