Overview
- This week the rupee recovered into the mid‑94s against the US dollar after several sessions of gains driven by Reserve Bank of India intervention and softer US dollar and Treasury yields.
- The RBI has combined aggressive spot dollar sales with new measures that force banks to set aside extra reserves on large FX derivative trades and a special window that supplies dollars directly to three state oil firms.
- Brokerage reports say the interventions have materially reduced foreign exchange reserves by about $51 billion and left import cover near its lowest level since 2013, reducing the central bank’s buffer.
- Market effects include a sharp rise in hedging costs with three‑month onshore forward yields at multi‑year highs, drying liquidity in forwards markets and higher domestic bond yields that raise borrowing costs.
- Strategists warn the measures offer short‑to‑medium relief but that persistent high oil bills, widening current account deficits and continued portfolio outflows could push the rupee toward 97–100 per dollar unless conditions improve and the RBI tightens policy further.