Why the rupee swings and what RBI is doing about it

The rupee moved from 96.88 to 95.38 per dollar in a week as RBI tightened forex derivative rules and opened a dollar window for oil companies.

Rupee and dollar symbols on a seesaw beside an oil barrel, depicting currency movement
The rupee reacts to dollar strength and oil prices. Illustration: AI-generated.

Key points

  • The rupee closed at 96.88 per dollar on 8 October 2026 and at 95.38 on 13 October 2026, according to The Hindu.
  • On 10 October, RBI tightened forex derivative rules, including a 20% cash reserve (FERR) on larger contracts.
  • From 12 October, RBI sells dollars to IOC, HPCL and BPCL to meet their entire daily dollar needs.
  • RBI also restricted rupee non-deliverable contracts for non-residents to hedging only.

What happened

The rupee ended a volatile week stronger. It closed at 96.88 against the dollar on 8 October 2026 and at 95.38 on 13 October, after RBI announced a set of measures for the foreign exchange market.

Forex traders quoted by The Hindu tied the early pressure to a strong global dollar and Brent crude near $104 a barrel. On 9 October, the rupee rose 16 paise to 96.72 as the dollar weakened and crude eased after remarks by Donald Trump that the US would refrain from military action against Iran. On 12 October it jumped 96 paise to 95.75, and on 13 October it gained another 40 paise to 95.38.

A paise is one-hundredth of a rupee, so a 96 paise move is almost ₹1 per dollar.

 

Line chart of rupee closing levels against the dollar from 8 to 13 October 2026
Rupee closing levels per dollar, October 2026 Chart: Finance.net.in, data: RBI.

Why the rupee swings

The exchange rate reflects demand and supply for dollars. Reports in The Hindu pointed to three drivers during this stretch: the strength of the dollar globally, the price of crude oil, and geopolitical remarks that shifted both.

India pays for oil in dollars, so higher crude prices raise the demand for dollars and can weigh on the rupee. When crude eases or the dollar weakens, the pressure tends to lift.

What RBI did

RBI said the steps were meant to keep the forex market orderly. It acted on several fronts.

Tighter rules on forex derivatives

On 10 October, RBI issued two circulars covering foreign exchange derivatives, which are contracts whose value depends on a currency rate. Banks that deal in foreign exchange are called Authorised Dealers.

  • No rebooking: Authorised Dealers cannot let users rebook a rupee derivative contract that was cancelled after the directions were issued. Rollover on maturity is still allowed, subject to existing rules.
  • Lower no-proof limit: The amount a user can hedge without showing an underlying exposure fell to $5 million from $100 million. The same cut applies to positions in exchange-traded currency derivatives across all recognised stock exchanges taken together.
  • Extra paperwork: Users hedging contracted exposures must give an undertaking that the same exposure has not been hedged with another Authorised Dealer.
  • Foreign Exchange Risk Reserve (FERR): For contracts with a notional value above $2 million, Authorised Dealers must keep a cash reserve with RBI equal to 20% of the rupee value of each transaction. This applies to contracts hedging current account exposures where the user buys foreign currency against the rupee.

Notional value is the full face amount of a contract, not the money actually paid upfront.

Special dollar window for oil companies

From Monday, 12 October, RBI sells dollars through designated banks to meet the entire daily dollar requirement of Indian Oil, Hindustan Petroleum and Bharat Petroleum. The facility continues until further notice. You can read more in our coverage of the special dollar window.

Limits for non-residents and bank hedging

In Circular No. 27 of 12 October, RBI said certain Authorised Dealers must offer non-deliverable derivative contracts involving the rupee to non-residents only for hedging. Earlier these could be offered without any restriction on purpose. Non-deliverable contracts are settled in cash without exchanging the currencies.

The circular also applies the 20% FERR to banks buying foreign currency against rupees to hedge their own assets and liabilities. The reserve is held in cash with RBI daily until the contract ends. It covers contracts undertaken after the directions were issued. See our report on the NDDC and FERR rules.

Bar chart showing RBI cutting the no-proof forex hedging threshold from $100 million to $5 million
RBI cut the threshold for hedging without proof of exposure. Chart: Finance.net.in, data: RBI.

What it means for you

The curbs target companies and banks that trade currency derivatives, not individuals sending money or paying for travel. Still, the exchange rate affects imports, overseas education costs and remittances. For a quick check of what a transfer is worth, you can use our money transfer calculator.

Currency moves can reverse quickly. Our weekly tracking shows the rupee rebound from 96.88 over the week.

Background

RBI has said the FERR and related steps are meant to strengthen market discipline and risk management. On 15 October, RBI also published frequently asked questions on the reserve, summarised in our FERR FAQ explainer.

What it means for you

The new RBI rules mainly affect banks, companies and traders using rupee derivatives, not everyday customers. For you, the effect shows up through the exchange rate, which influences the cost of imports, foreign travel, overseas study and remittances. The rupee moved by about ₹1.50 against the dollar between 8 and 13 October.

Money Transfer to India Calculator Currency Converter

Frequently asked questions

Why did the rupee fall to 96.88 against the dollar?

Forex traders quoted by The Hindu cited global dollar strength and Brent crude near $104 per barrel as pressures on the rupee on 8 October 2026.

What is the Foreign Exchange Risk Reserve?

It is a cash reserve that Authorised Dealers must keep with RBI, equal to 20% of the rupee value of certain forex derivative contracts, such as those with a notional value above $2 million that hedge current account exposures.

How is RBI helping oil companies?

From 12 October 2026, RBI sells dollars through designated banks to meet the entire daily dollar needs of Indian Oil, HPCL and BPCL, until further notice.

Sources

  1. RBI Announces Regulatory Measures for the Foreign Exchange Market — RBI press releases
  2. RBI announces special window for Public Sector Oil Marketing Companies to meet dollar requirements — RBI press releases
  3. Risk Management and Inter-Bank Dealings — RBI notifications
  4. RBI issues Frequently Asked Questions on Foreign Exchange Risk Reserve — RBI press releases
  5. Rupee falls 13 paise to close at 96.88 against U.S. dollar — The Hindu — Markets
  6. Rupee rises 16 paise to close at 96.72 against U.S. dollar — The Hindu — Markets
  7. Rupee jumps 96 paise to close at 95.75 against U.S. dollar — The Hindu — Business
  8. Rupee jumps 40 paise to close at 95.38 against U.S. dollar — The Hindu — Business

This article is for information only and is not investment, tax or legal advice. Figures are from the sources linked above as of the publish or update time. Please verify with official sources or a qualified adviser before making financial decisions.