The Reserve Bank of India’s latest foreign-exchange measures are likely to strengthen the rupee initially, but could raise costs for importers hedging genuine exposures without resolving the external pressures behind the currency’s depreciation, economists said.

ANZ economist and foreign-exchange strategist Dhiraj Nim said an analysis of client forward purchases showed little evidence of a broad speculative build-up. Instead, the data pointed more towards companies increasing protection against depreciation as oil prices, global financing conditions and capital flows became less favourable.

ANZ expects an initially sharp positive reaction in the rupee and lower forward premia, but retained its forecast for dollar/rupee at 97.50–98.00 in nine to 12 months. Depreciation was likely to resume once the initial impact faded unless balance-of-payments pressures eased, Nim said.

The package announced over the weekend includes a special dollar window for three public-sector oil marketing companies, tighter derivative documentation and rebooking rules, and a reserve requirement on large foreign-currency purchase hedges.

Hedging Costs
Under the Foreign Exchange Risk Reserve, or FERR, authorised dealers must maintain rupee cash reserves equal to 20% of the notional value of qualifying derivative contracts above $2 million. The requirement covers current-account exposures involving purchases of foreign currency.

The package also reduced the threshold for derivative positions without proof of underlying exposure to $5 million from $100 million per entity, tightened checks against duplicate hedging and restricted rebooking of cancelled contracts while preserving rollover at maturity, ANZ said.

Nim distinguished those restrictions from FERR. Documentation and rebooking rules target directional or duplicated positions, while the reserve requirement raises the cost of large hedges even when backed by genuine current-account exposures.

ANZ’s examination of Clearing Corporation of India data found that contract maturities had not consistently shortened, average transaction sizes had declined and rupee weakness had not systematically increased the concentration of short-dated forward purchases.

Forward buying had, however, periodically grown faster than imports during episodes of currency stress. Nim said this was more consistent with businesses hedging a larger proportion of their obligations than with a concentrated build-up of short-term speculative positions.

Banks were likely to pass on or share the reserve requirement’s opportunity cost through wider spreads, less favourable pricing or tighter client limits. ANZ expected the reserves to be non-interest-bearing, but said the RBI had not clarified that point.

Gaura Sen Gupta, economist at IDFC FIRST Bank, estimated an additional importer hedging cost of about 1.5%. Reduced importer demand should lower forward premia, while prospects of a more stable rupee could encourage exporters to hedge, she said.

Madhavi Arora, chief economist at Emkay Global Financial Services, cautioned that some importers could replace forward cover with future spot purchases, leaving underlying dollar demand intact.

She also warned that the lower documentation threshold would increase compliance burdens for genuine mid-sized hedgers and could divert speculative activity towards offshore non-deliverable forwards, potentially widening the gap between offshore and onshore pricing.

Oil Window
The special oil window, effective Oct 12, will meet the three public-sector oil marketing companies’ dollar requirements through designated banks.

Sen Gupta estimated that about $12 billion of monthly demand could move out of the spot market. That estimate assumes the companies account for roughly 60% of India’s average monthly petroleum imports of $20 billion, using refining output as a proxy.

The arrangement changes the route through which oil companies obtain dollars rather than adding to reserve drawdowns, she said. Previously, their purchases entered the spot market, where the RBI intervened to bridge the demand-supply gap.

Nim said removing a large, predictable demand flow could reduce the spillover from higher oil prices into broader currency-market sentiment, particularly around month-end. But the dollar requirement remained, with the RBI meeting it through its balance sheet.

The central bank’s near-term intervention capacity had nevertheless improved in ways not fully reflected by the recent decline in foreign-currency assets, he said.

Sell-buy swaps temporarily reduce spot foreign-currency assets but replenish them at maturity. The RBI’s net short forward position maturing within one year also fell to $23.5 billion at end-August from $45.2 billion in July, reducing near-term delivery obligations even as the overall net short book stood at about $200 billion.

Nim said the longer maturity profile had created additional near-term capacity, although persistent external deficits would keep the broader forward obligations and reserve position under scrutiny.

Funding Pressure
Sen Gupta said the underlying balance of payments remained negative after excluding inflows through the special swap windows for foreign-currency non-resident deposits, external commercial borrowings and overseas foreign-currency borrowings.

Those inflows supported the headline external balance, but the dollars had been absorbed by the RBI and would influence market supply when deployed through intervention. The deposit-related funds would also have to be repaid after three to five years, she said.

IDFC FIRST Bank expects the current-account deficit to reach 1.8% of gross domestic product in 2026–27. Even with stronger foreign direct investment, it forecasts the basic balance, the current-account balance plus net FDI, at a deficit of 1.3% of GDP, its weakest since 2012–13.

That would increase dependence on more volatile capital to finance the external gap, Sen Gupta said. Higher US yields and a narrow interest-rate differential were also limiting the attraction of Indian debt.

Arora separately projected a current-account deficit of 1.6%–1.7% of GDP with Brent crude around $100 a barrel and electronics imports remaining expensive.

She said India faced greater competition for global capital as high US returns combined with an artificial-intelligence-led growth premium. A balance-of-payments deficit in the second half of 2026–27 could sustain rupee pressure after the special deposit inflows ended.

Liquidity Outlook
The currency measures also interact with the RBI’s effort to absorb surplus rupee liquidity.

The central bank has scheduled another ₹250 billion of government bond sales for Oct. 13, following ₹1 trillion already sold, according to Emkay. Arora said further sales were possible depending on liquidity conditions, particularly as higher forward premia made sell-buy swaps a more costly absorption route.

Sen Gupta cautioned, however, that the need for permanent liquidity withdrawal was lower than the current surplus suggested.

Core liquidity had already fallen to ₹10.4 trillion on Oct. 2 from a peak of ₹14.2 trillion on Sept. 4. She projected a decline to around ₹2 trillion by March 2027 as seasonal cash demand and dollar sales against a second-half balance-of-payments deficit absorbed funds.

Further durable withdrawal could leave banking-system liquidity tight later in the financial year. The RBI could allow sell-buy swaps to mature if conditions became too restrictive, she said.

A separate increase in minimum daily cash reserve maintenance to 99% of the requirement from 90%, effective Oct. 16, should push overnight call rates closer to the repo rate without materially changing aggregate liquidity, the IDFC FIRST Bank and Emkay reports said. Banks must still meet the full requirement on average over the fortnight.

Nim said ANZ would reassess its rupee forecast after reviewing hedging and reserve data over the coming weeks. The latest measures were unlikely to mark the end of the RBI’s response if external vulnerabilities intensified, he said.