Rupee Rallies 1% After RBI Steps to Curb Dollar Demand

The Indian rupee strengthened by around 1% against the US dollar on Monday, recording its sharpest single-day gain in six months after the Reserve Bank of India (RBI) introduced measures to reduce dollar demand and support the domestic currency.

The rupee rose to ₹95.77 per US dollar from Friday’s close of ₹96.73, according to a Reuters report. The rally followed a series of steps announced by the central bank to ease pressure on the foreign exchange market and curb speculative activity.

RBI Redirects Oil Companies’ Dollar Purchases

One of the key measures involves a special facility through which the RBI will meet the dollar requirements of three state-owned oil marketing companies: Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.

The move is intended to shift oil companies’ dollar purchases away from the regular spot foreign exchange market, where substantial demand for dollars has contributed to pressure on the rupee.

The facility is expected to divert an estimated $10 billion to $12 billion in monthly dollar demand away from the spot market, based on oil import data cited in the report.

Tighter Rules on Foreign Exchange Transactions

The RBI has also tightened rules governing foreign exchange derivatives to discourage excessive speculation and reduce demand for forward dollars.

The new measures include restrictions on rebooking cancelled rupee-linked foreign exchange derivative contracts, lower limits for certain transactions without proof of underlying exposure, and a requirement for banks to maintain a 20% cash reserve against specified foreign exchange hedge transactions.

These changes could increase the cost of hedging currency risks for some businesses. The RBI’s objective is to moderate excessive dollar buying and improve discipline in the foreign exchange market.

Global Pressures Continue to Weigh on the Rupee

The rupee has faced sustained pressure in 2026 amid elevated crude oil prices, foreign investment outflows and strong global bond yields. Higher oil prices increase India’s import bill and contribute to demand for US dollars.

Foreign investors’ selling of Indian equities has added to the pressure on the domestic currency. Expectations of further rupee weakness have also encouraged importers to purchase dollars in advance to protect themselves against higher future costs.

Although the RBI’s measures have helped the rupee recover, analysts caution that the gains may not be sustainable unless broader economic pressures ease.

Outlook Remains Uncertain

The currency’s recovery will depend on several factors, including international crude oil prices, foreign investment flows, demand for dollars and the effectiveness of the RBI’s measures.

While the latest steps may provide short-term support, they do not eliminate the underlying demand for dollars arising from imports and other cross-border transactions.

Market participants will continue to monitor the rupee’s movement and the impact of the new regulations on foreign exchange liquidity and corporate hedging costs.

Source: Reuters, October 12, 2026.