The Reserve Bank of India published the details of its emergency rupee package late Friday, confirming the two-pronged defense Bloomberg reported overnight. First, the RBI will meet the entire daily dollar requirements of the three public-sector oil marketing companies - Indian Oil, Hindustan Petroleum and Bharat Petroleum - by selling dollars directly through designated banks. The facility starts Monday, October 12, and stays in place until further notice, removing India’s largest single source of spot-market dollar demand from the open market.
The regulatory measures go after speculation directly. The RBI barred rebooking of cancelled foreign-exchange derivative contracts involving the rupee, whether deliverable or non-deliverable, cutting a channel used to keep speculative positions rolling; rollover on maturity is still permitted. It slashed the threshold for undertaking rupee FX derivatives without proving an underlying exposure from $100 million to $5 million equivalent, across all authorized dealers and across all recognized stock exchanges for exchange-traded contracts, and required dealers to collect written undertakings that the same exposure has not been hedged elsewhere.
The sharpest tool is the new Foreign Exchange Risk Reserve, or FERR: banks must hold 20 percent of the notional amount in cash with the RBI on every rupee FX derivative contract above $2 million notional where the client is buying foreign currency against the rupee to hedge current-account exposures. A 20 percent unremunerated cash reserve makes large directional rupee-short bets materially more expensive, the kind of capital-control-adjacent measure the RBI last used in its 2013 playbook.
The package landed four days after the RBI’s October 7 rate hike to 5.50 percent with a calibrated-tightening stance, and it came alongside a Rs 25,000 crore open-market bond sale scheduled for October 13 (see today’s OMO story). Bloomberg called it the central bank’s strongest action since the 2013 currency crisis as the rupee slid toward a record low. The oil window addresses the flow pressure from crude at $91 a barrel; the FERR and rebooking ban address speculative positioning. Together they show the RBI treating the rupee’s slide as a structural funding problem rather than a blip to smooth.