On October 12, the Indian rupee surged by nearly 1% right at the opening. While it had closed at 96.73 on Friday, it opened at 95.76 on Monday. This marks the largest single-day gain in the last six months. The reason behind this is that the Reserve Bank of India (RBI) took three major decisions over the weekend.
The foreign exchange market opened at 9:00 AM on Monday, October 12. The rupee surged by 97 paise to open at 95.76; it had closed at 96.73 on Friday (October 9).
How far had the rupee fallen previously? On October 7, it had touched 96.8450, a five-month low. It was just shy of the all-time low of 96.96 recorded in May.
The RBI did not remain idle. It took three major steps on Saturday (October 10).
The Government of India took action
- “Special Window” for Oil Companies
The RBI opened a dedicated window for three state-owned oil companies—Indian Oil (IOC), Hindustan Petroleum (HPCL), and Bharat Petroleum (BPCL). These companies can now purchase dollars directly from the RBI instead of the open market.
Crude oil accounts for approximately 25% of India’s imports. Oil companies purchase dollars from the market on a daily basis; removing them from the market effectively reduces the demand for dollars.
- Curbs on foreign currency derivatives
The RBI has reduced the limit for trading in foreign currency derivatives without “actual underlying exposure” from $100 million to $5 million. This means that while one could previously place bets worth $100 million, one must now demonstrate a genuine business requirement for any amount exceeding $5 million.
Additionally, cancelled contracts cannot be re-booked.
- 20% Foreign Exchange Reserve
Banks will be required to maintain a 20% cash deposit with the RBI against rupee-linked derivative contracts exceeding $2 million.
The direct implication: Hedging dollars will become 80 to 150 basis points more expensive for companies.
How did the rupee fall so much initially?
The rupee’s decline was not a one-day affair. So far in 2026, the rupee has fallen by approximately 7%, making it one of the worst-performing currencies in Asia.
Three major reasons:
First, oil is expensive. Brent crude has consistently remained above $100; India imports 90% of its oil.
Second, foreign investors are pulling out. In 2026, foreign funds have withdrawn $324 billion from the Indian stock market.
Third, US bond yields have risen. The US 10-year Treasury yield stands at 5.3%, the highest level in 25 years.
Now that it has returned, will it last?
Most economists answer: yes in the short term, but probably not in the long term.
Madan Sabnavis, Chief Economist at Bank of Baroda, states clearly: “The rupee has a tendency to naturally depreciate by 3–4% over the long term.”
Vivek Kumar of QuantEco Research says: “The RBI’s latest moves will curb speculation and provide some relief to the rupee, but they won’t change the global environment.”
Madhavi Arora of Emkay Global offers a precise analogy: “These are tactical stop-gaps, not structural solutions.”
Where will the rupee go from here?
In the near term, analysts believe the rupee could move within the 95.80 to 95.50 range. According to Amit Pabari of CR Forex, the 96.70–97.00 zone acts as a strong resistance level that the RBI will likely try to defend.
Anindya Banerjee of Kotak Neo projects that the dollar-rupee pair will trade between 94 and 97.
However, the forward market is not as optimistic; the one-year forward contract is hovering around 99.70, implying the market expects the rupee to weaken further.
BMI (a Fitch research unit) forecasts that the rupee could reach 97 by the end of FY27 (March 2027) and 99 by the end of FY28.
What does this mean for the common man?
If you need dollars: Exchanging currency is cheaper now than it was last Friday. On Friday, $1 stood at ₹96.73; now, it is ₹95.76.
If you are an importer: Hedging has become costlier. Banks will pass on the cost of the 20% reserve requirement to you.
If you hold Indian stocks: The rupee’s temporary stabilization is a positive sign. However, whether foreign investment returns depends on oil prices and US bond yields.
If you simply want to understand the news: Remember one thing—this move by the RBI mirrors the toolkit used during the 2013 “Taper Tantrum.” Back then, too, the RBI opened a special window for oil companies and tightened derivative regulations. The rupee did stabilize, but it took months.
Disclaimer
Economists and foreign researchers believe that the depreciation of the rupee is not a sign of India’s weakness but rather a consequence of global turmoil; nevertheless, it will place a direct and heavy burden on the general public and companies alike.
