RBI announces four steps to prop up rupee, including dollar sales to three state oil firms

With the rupee continuing to fall against the dollar, the Reserve Bank of India (RBI) has announced several measures to steady it. These include arrangements to meet the daily dollar requirement of three state-run oil companies. Steps have also been taken to curb speculation, manage reserve-related risk and keep currency hedging safe.

According to the RBI statement, dollars will be sold to Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). The arrangement will come into force on Monday, October 12, 2026, and will continue until further notice. Under it, the RBI will sell US dollars to the three companies through designated banks so that they keep getting the foreign exchange needed for their day-to-day operations. The RBI has not said how much money will be provided under the arrangement, or whether there is any limit on individual transactions. It has also not made clear how long the facility will last.

Oil companies need US dollars for crude oil imports and other foreign expenses. Crude is traded internationally mostly in dollars, so movements in the rupee-dollar rate can affect import costs and the companies' funding needs.

This comes at a time when the rupee is hovering near a record low against the dollar despite RBI intervention in the forex market and an interest rate increase. On Friday the rupee closed at 96.73 to the dollar, just short of the all-time low of 96.96 recorded in May.

The second step concerns forex derivatives. The RBI has cut the limit on certain forex derivative transactions from $100 million to $5 million. The reduced limit will also apply to rupee-linked exchange-traded currency derivatives on recognised stock exchanges. The aim is to ensure that large derivative positions are used for genuine purposes such as import payments or exports, and not mainly for speculation.

The third step is a new Foreign Currency Risk Reserve (FERR) requirement. It applies to rupee-linked foreign exchange derivative contracts with a notional value of more than $2 million. Registered dealers will have to keep 20% of the rupee value of every eligible transaction with the RBI as a cash reserve. The requirement applies to contracts used to hedge current account exposure, that is, where the customer buys foreign currency against rupees.

The fourth step is tighter hedging documentation. Registered dealers will have to obtain and keep an undertaking from customers entering forex derivative contracts, confirming that the same risk has not been hedged through another dealer. The aim is to prevent double hedging of the same risk and to improve the market.

Will these measures stop the rupee's slide? They may reduce speculative demand for dollars and offer relief from short-term volatility. But the outcome will depend on larger factors such as crude oil prices, foreign investment flows and the movement of the dollar worldwide. In the week ended October 2, India's foreign exchange reserves fell by $12.95 billion to $734.60 billion, the fourth consecutive weekly decline.