RBI's dollar window for oil firms lifts rupee to 94.96 as Brent holds $105

The Indian rupee opened at 95.53 on Tuesday and climbed as far as 94.96 in early trade, an 82-paise gain over Monday's 95.78 close. The move follows Monday's 93-paise jump — the currency's biggest one-day advance since April — which took the pair to 95.78 from Friday's 96.73 settlement. Two sessions, 175 paise, roughly 1.8% of recovery from a close that sat just 23 paise off the May record low of 96.96.

Behind the bounce is the Reserve Bank of India's weekend package. On Saturday the central bank opened a special window selling dollars straight from its foreign exchange reserves to the three state-run fuel retailers — Indian Oil, Hindustan Petroleum and Bharat Petroleum — covering their entire daily dollar requirements through designated banks. The facility went live on Monday and stays until further notice. Because oil importers rank among the heaviest repeat buyers of dollars in India's spot market, moving their purchases off-market takes a persistent daily bid out of the tape.

That is the whole trick. India's largest steady dollar buyer no longer shows up in the spot market at all.

The same package also cut the threshold for deals without proven underlying exposure from $100 million to $5 million, and forced banks to park 20% cash with the RBI against dollar-buying FX derivative contracts above $2 million notional. Companies were prohibited from reviving rupee-linked derivatives they had already cancelled. On Monday the RBI tightened further, restricting non-deliverable rupee contracts sold through India's offshore financial-services centre to hedging use only.

It is working — for now. That still leaves the currency 6.6% lower for the year, and the flow backdrop is mixed at best. Brent futures traded 1.11% lower at $105.47 on Tuesday, yet remain about 3.1% above the $102.25 October 2 close in our standing data, so the fuel bill that triggered this intervention has not gone away. September retail inflation printed at 5.54%, up from 4.83% in August on higher food prices, holding just inside the RBI's tolerance band. Foreign investors kept selling: FIIs offloaded a net Rs 1,708.48 crore of Indian equities on Monday. The dollar index itself was softer, down 0.15% at 102.43.

Desk opinion lines up behind the move with caveats attached. CR Forex Advisors' managing director Amit Pabari told PTI the pair should drift toward the 95.00–94.80 zone near term. Kotak Neo's Anindya Banerjee called the weekend package a clear near-term positive that pulls the oil companies' whole daily dollar demand out of the regular market. Barclays strategist Mitul Kotecha wrote that the RBI has shifted from signalling the rupee's weakness looks excessive to actively restraining dollar demand — though he still expects only an orderly depreciation. Societe Generale cautioned that once the first effect fades, crude prices, portfolio flows and the dollar's direction will keep deciding the rupee's course.

Why it matters

This is the RBI stepping directly into the middle of India's oil-import bill. With Brent above $100 a barrel, the country's fuel purchases are one of the largest structural drains on the rupee, and the window effectively removes that flow from the spot market — at the cost of reserves, which fell $12.95 billion to $734.60 billion in the week to October 2. The 20% cash reserve is already drawing pushback: banks have asked the RBI to scrap it for hedges of current-account exposures and charge a flat fee instead, warning that the rule could freeze up ₹600–700 billion ($6.27–7.31 billion) of liquidity, per Citi estimates. The central bank is spending credibility on both fronts at once.

*Tuesday's value is the intraday level at the time of writing.