RBI Launches Special Dollar Window for Oil Firms Amid Rupee Decline

The Reserve Bank of India (RBI) has unveiled several new steps to support the Indian rupee, which has been trading close to its historic lows. Among the key actions is the creation of a special dollar window designed to fulfill the entire daily foreign currency needs of three state-owned oil marketing companies (OMCs).

The companies benefiting from this initiative are Indian Oil Corporation Ltd (IOC), Hindustan Petroleum Corporation Ltd (HPCL), and Bharat Petroleum Corporation Ltd (BPCL). In an official statement released on Saturday, the RBI explained that the special window will provide these OMCs access to the US dollar through designated banks, helping them meet their dollar requirements more efficiently.

This facility is scheduled to become active beginning October 12, 2026, and will continue until the central bank decides otherwise. The move aims to ease pressure on the rupee by managing the demand for foreign currency from these critical public sector entities.

Alongside this, the RBI introduced tighter regulatory measures in the foreign exchange market to maintain orderly trading and reduce speculative volatility. One significant restriction involves banning the rebooking of cancelled foreign exchange derivative contracts that include the Indian rupee. Specifically, authorised dealers are instructed not to allow users to rebook any such contracts once they have been cancelled.

However, the RBI clarified that the rollover of derivative contracts upon maturity will still be permitted, ensuring continuity for legitimate hedging activities.

Another important change is the lowering of thresholds for foreign exchange derivative transactions that do not require an underlying exposure. The permissible limit has been drastically reduced from $100 million to $5 million. This applies to both over-the-counter and exchange-traded currency derivatives involving the Indian rupee, collectively across all recognised stock exchanges.

To further strengthen risk management, the central bank introduced the Foreign Exchange Risk Reserve (FERR) requirement. Forex dealers must now maintain a reserve equal to 20 percent of the notional amount of each eligible derivative transaction involving the rupee. This rule targets contracts used to hedge current account exposures where users purchase foreign currency against the rupee.

The RBI emphasized that these measures are designed to enhance market discipline and promote transparency in the foreign exchange market, especially as the rupee faces significant downward pressures.

Since the escalation of the West Asia conflict in late February, the rupee has depreciated by approximately 6 percent. Over the past year, the currency has lost more than 8 percent of its value. This decline has prompted the RBI to intervene actively in forex markets to curb excessive volatility and stabilise the currency.

Despite these efforts, India's foreign exchange reserves have shrunk by around $51.1 billion in the four weeks ending October 2. This follows a recent peak of $785.7 billion reached in the week of September 4, reflecting the challenges faced by the central bank in managing external pressures.

The new policies come at a time when global economic uncertainties and geopolitical tensions continue to affect currency markets worldwide. India's move to support its currency through targeted support for critical sectors like oil and tighter controls on forex derivatives highlights the central bank's focus on safeguarding financial stability.