Mumbai, October 13, 2026: The Reserve Bank of India’s latest measures to support the rupee have triggered uncertainty across the foreign-exchange market, prompting at least eight major banks to temporarily stop quoting dollar-rupee forward contracts while seeking clarity on the new rules. The restrictions are intended to curb speculative dollar demand, but bankers say uncertainty over implementation has disrupted hedging activity and reduced liquidity in the domestic forex market.
Banks Pause Forward Quotes
Several lenders reportedly withdrew quotes for USD/INR forward contracts after uncertainty emerged over the scope of the RBI’s new Foreign Exchange Risk Reserve requirement.
Some banks initially interpreted the rules as potentially covering interbank market-making transactions alongside client hedges. The uncertainty prompted dealing desks to adopt a more cautious approach while seeking clarification from the central bank.
RBI Provides Partial Clarification
The RBI subsequently clarified to some lenders that the reserve requirement does not apply to normal market-making and trading transactions conducted by banks.
However, bankers said they were still awaiting fuller formal guidance on implementation. The lack of clarity has left some market participants uncertain about how the measures should be applied to different types of transactions.
New Measures Target Speculative Dollar Demand
The central bank has introduced a package of measures aimed at easing pressure on the rupee and limiting speculative activity in the foreign-exchange market.
The steps include tighter conditions for certain forex derivatives, restrictions on non-deliverable forward transactions without genuine underlying exposure and additional reserve requirements for specified large hedging transactions.
The measures reflect the RBI’s efforts to manage currency volatility while limiting activities that could intensify demand for dollars.
Special Dollar Facility for Oil Companies
The RBI has also established a special dollar facility for major state-owned oil companies.
By supplying dollars through a separate arrangement rather than relying entirely on the regular spot market, the central bank aims to reduce pressure from one of India’s major sources of dollar demand.
Oil imports are particularly important for the domestic currency market because purchases from overseas suppliers require substantial foreign-currency payments.
Forward-Market Liquidity Comes Under Pressure
The uncertainty surrounding the new rules has reportedly affected trading conditions, with forward-market volumes declining and bid-ask spreads widening.
Some corporate clients have also shifted activity towards offshore markets, where pricing may be more liquid. A sustained shift could affect the depth and efficiency of the domestic forex market.
Importers Could Face Higher Hedging Costs
Forward contracts help importers and other businesses lock in exchange rates for future payments, reducing their exposure to currency fluctuations.
If banks become less willing to quote these contracts, companies could face wider spreads, higher hedging costs or fewer options for managing foreign-exchange risk.
Such disruptions could be particularly challenging for businesses that depend on imported raw materials, energy or overseas payments and operate with limited financial flexibility.
Rupee Recovers Following RBI Measures
Despite the disruption in forward trading, the rupee reportedly strengthened to around ₹94.96 per US dollar on Tuesday, October 13, after gaining nearly 1% in the previous session.
The recovery followed the RBI’s latest measures to ease pressure on the currency. However, the immediate movement does not by itself establish how effective the restrictions will be over the longer term.
Currency Remains Under Pressure in 2026
The recent rebound has not erased the rupee’s broader weakness. The currency remains down approximately 6% this year, according to market reports.
Elevated crude-oil prices, foreign equity outflows and global risk aversion have contributed to pressure on the rupee. These factors can increase demand for dollars and complicate efforts to stabilise the exchange rate.
Banks Seek Relief on Reserve Requirement
Banks have reportedly asked the RBI to reconsider or modify a 20% cash-deposit requirement attached to certain forex transactions.
Some lenders have proposed replacing the requirement with a simpler flat charge, arguing that a revised structure could reduce operational difficulties while retaining safeguards against excessive speculative activity.
The central bank’s response will be important in determining how quickly normal quoting activity can resume across the affected segments of the market.
Offshore Markets Could Gain More Business
Tighter restrictions in the domestic market could encourage some companies and financial institutions to shift more hedging activity to offshore non-deliverable forward markets.
If that trend continues, a greater share of currency-price discovery could take place outside India. This could potentially reduce liquidity in the onshore market and make it more difficult for domestic participants to obtain competitive pricing.
RBI Faces a Difficult Balancing Act
The central bank is attempting to curb speculative pressure on the rupee without restricting legitimate foreign-currency requirements of businesses.
While regulatory measures can influence trading behaviour and short-term market conditions, underlying demand for dollars also depends on imports, capital flows and international energy prices.
The challenge is to maintain currency stability while ensuring that businesses can continue to manage genuine foreign-exchange risks efficiently.
Market Awaits Further RBI Guidance
Banks and corporate clients are now watching for formal clarification on how the new rules apply to customer hedging, interbank trading and market-making activities.
Clearer guidance could help lenders resume normal quoting practices and reduce uncertainty. Until then, trading conditions may remain subdued in some segments, even as the rupee responds to the central bank’s intervention.
Sources – Reuters, Reserve Bank of India, Moneycontrol, The Economic Times
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