Rupee’s Recent Upswing
On 13 October the Indian rupee edged higher, trading at ₹95.16 per U.S. dollar after a 62‑paise gain from the previous day’s close of ₹95.77. The rally followed a series of interventions by the Reserve Bank of India (RBI) aimed at restraining dollar demand and speculative activity in the foreign‑exchange market.
RBI’s New Toolkit
The RBI’s October 12 directive introduced several structural measures:
* **Foreign Exchange Risk Reserve (FERR)** – Authorised dealers must now hold a cash reserve equal to 20 % of the rupee‑equivalent notional value of each eligible derivative contract. The reserve is deposited daily with the RBI and maintained until the contract expires. * **Restrictions on Non‑Deliverable Rupee Derivatives (NDRs)** – Dealers operating through India’s International Financial Services Centre and certain primary dealers are barred from offering NDRs to non‑residents for purposes other than hedging. * **Direct Dollar Sales** – The RBI sold dollars to support the rupee, a move that traders say helped curb panic buying.
Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, noted that the central bank intends to keep the rupee within a ₹95‑₹96 band for the day, with exporters selling the upticks and importers buying the dips to hedge their October‑November payments.
Market Reaction
The measures were credited with containing near‑term volatility. Bhansali observed that the tight trading range near the session’s highs signalled successful containment of panic buying. The FERR rule is expected to keep importers’ demand lower, as they must pay the reserve either in cash or as a margin that can rise by 10‑20 paise per month, adding to their cost beyond the forward premium.
Underlying Factors
While the RBI’s interventions have eased immediate pressure, the rupee’s trajectory will still depend on:
* Global dollar demand and capital flows * Crude‑oil prices, which influence the rupee through the country’s import bill * Broader market conditions and investor sentiment
The RBI has reiterated that it does not target a specific exchange‑rate level; the rupee’s value remains ultimately market‑determined.
Looking Ahead
The central bank’s latest directions follow earlier measures, including a special dollar‑supply window for three state‑run oil marketing companies to meet daily foreign‑exchange needs. Market participants will watch how the new FERR requirement and NDR restrictions affect dealer behaviour and whether the rupee can sustain its gains amid fluctuating global conditions.