RBI opens a dollar window for 3 oil firms as the rupee nears 97

By Strota Newsroom · 2026-10-11 · How Strota reports

On Saturday the Reserve Bank of India said it will sell dollars directly to three state oil companies: Indian Oil, Hindustan Petroleum and Bharat Petroleum. The arrangement starts on Monday, October 12, and covers their entire daily dollar requirement. It stays in place until further notice. Those three refiners buy crude every day, and crude is now above 100 dollars a barrel.

The rupee closed at 96.73 to the dollar on Friday. Its record low is 96.96, touched in May, and it has weakened by more than 7 per cent this year. That is what the central bank is answering. An oil importer working on a rupee budget needs more rupees for the same barrel when the currency is weak, and if that demand runs through the open market it drags the rupee down further.

Until now those dollars were bought in the market. A refiner buying a large quantity of dollars adds to the demand for them, and in a thin market that demand pushes the rupee lower, which makes foreign investors slower to bring money in, which weakens it again. The window takes one very large and very predictable buyer out of that market. Instead of bidding, the refiners buy from the central bank through a designated bank.

Size is the point. India buys most of the crude it refines abroad, and those purchases are one of the steadiest sources of dollar demand in a month. Pulling that demand out of the open market is a way to relieve the pressure on the rupee without touching interest rates a second time. It also lets the central bank see the demand before it reaches the market, rather than answering it after the price has already moved.

The same day, the central bank tightened the other side of the market. A new circular requires banks to hold a Foreign Exchange Risk Reserve on rupee-linked derivative contracts above 2 million dollars, written for importers who are buying foreign currency against rupees to settle payments. The reserve is 20 per cent of the rupee value of the contract. It must sit as cash with the Reserve Bank every day and stay there until the contract ends.

A derivative is simply a way to fix today the rate at which you will pay for something later. An importer that owes dollars in three months can lock in a rate now, so a slide in the rupee does not change the bill. The new rule says that on any such contract above 2 million dollars, a fifth of its rupee value has to be parked as idle cash with the central bank rather than used for anything else.

Two more changes came with it. The limit up to which these contracts can be written without proof of an underlying trade fell from 100 million dollars to 5 million dollars. And a company that cancels a rupee-linked derivative contract can no longer rebook it. Together those changes make it harder to take a one-way bet against the rupee, and more expensive to protect a real payment.

So the two halves of Saturday's announcement pull in opposite directions on the price of a dollar. Three oil companies get their dollars directly from the central bank, through a window built for them. Everyone else who needs to shield a future payment pays more to do it, because a fifth of a large contract now has to be held in cash instead of working.

Holding the line is not free. India's foreign exchange reserves fell from 785.7 billion dollars on September 4 to 734 billion dollars on October 2, a drop of almost 52 billion dollars in four weeks, with 12.95 billion dollars of that going in the final week alone. Part of any such fall is the dollars the central bank sells and part is the valuation effect of a stronger dollar on the rest of the holdings, which are not all in dollars.

A household meets the same bill from the other end. The crude that becomes petrol, diesel and cooking gas is bought in dollars. So is much of the edible oil on the shelf, and most of the electronics and medicines that arrive from abroad. When the rupee slips, the same shipment costs more rupees, and that difference is what shows up as imported inflation. The bill for a year abroad, or for a holiday paid in dollars, moves the same way, because both are priced in the currency the country is short of.

That is the same fight the central bank was already in. On October 7 it raised its policy rate by 25 basis points to 5.50 per cent, the first increase since February 2023, and pointed to rising prices. A weak rupee is one of the channels that keeps those prices rising. A household feels it twice: once at the shop, and once on the loan that reprices off that rate.

What the record does not say is how big the window is. The Reserve Bank has not published a daily figure for the dollars it will supply, or an estimate of what the arrangement costs its reserves, or a date on which it ends. The circular also applies only to fresh contracts, so hedges written before Saturday carry on under the old rules.

What the record does settle is narrower. The rupee is near its record low, three named companies now get dollars from the central bank, everyone else pays more to insure against a weaker currency, and the reserves are smaller than they were a month ago. Whether that holds the rupee is not something the data yet show. The two numbers that set a household's import bill, the exchange rate and the crude price, were both still moving when the week ended.

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