Biggest rupee defence in a decade draws line under 97 per US dollar

Published Mon, Oct 12, 2026 · 04:59 PM

INDIA’S most forceful currency defence in more than a decade is cementing expectations among traders and analysts that the central bank will do everything it can to prevent the rupee from weakening below 97 per dollar.

Market participants view that level as a new floor after the Reserve Bank of India (RBI) unveiled over the weekend its most stringent trading curbs since the 2013 taper tantrum. The rupee surged 1.2 per cent on Monday (Oct 12) to 95.5963 per US dollar, pulling away from record lows near the 97 level that it had approached several times since May.

“It is absolutely evident now that 97 per dollar is the RBI’s line in the sand for the rupee,” said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership in Mumbai. The RBI’s message is that the rupee’s fall has been too sharp and the central bank is willing to do whatever it takes to prevent a new record low, he said.

Australia & New Zealand Banking, Credit Agricole and Malayan Banking also view 97 as the key level for the RBI. The RBI did not immediately respond to an email seeking comment on the matter.

The new measures include a special window to meet state-run oil companies’ US dollar needs and a reserve requirement on certain foreign-exchange derivatives. The RBI, which raised interest rates last week and signalled that it was open to further tightening, again intervened in the onshore market on Monday to support the rupee, traders familiar with the matter said.

“The RBI’s latest measures reinforce 97 as a line in the sand for the rupee, at least temporarily,” said Shaun Lim, FX analyst at Maybank in Singapore.

Banks and other Indian foreign-exchange market participants asked the central bank to relax these and delay their implementation, according to people familiar with the developments.

Separately, bonds fell, with the benchmark 10-year yield rising to the highest level since November 2023, after the RBI also asked banks to put aside more cash as part of a reserve requirement on a daily basis and announced an open-market bond sale, where it sells bonds it already owns.

The RBI has already taken several steps to bolster its foreign-exchange resources. Its diaspora deposit programme raised a record US$133 billion, swelling its foreign-exchange reserves to nearly US$800 billion in early September. Since then, the stockpile has fallen US$51 billion, partly due to the RBI’s US dollar sales to support the rupee.

Earlier, it also limited daily net open positions for banks at US$100 million and barred lenders from offering clients non-deliverable rupee contracts, a restriction it later rolled back. It also removed taxes on bond investments by global funds. 

The rupee has weakened about 6 per cent this year, one of the worst performers in Asia. RBI Governor Sanjay Malhotra said last week that it was undervalued on some gauges, and that markets can be irrational in the short term.

The latest steps target demand in the foreign-exchange derivatives market. For the first time, the RBI introduced a foreign-exchange risk reserve, requiring lenders to hold with the central bank the rupee equivalent of 20 per cent of the notional value of each derivative transaction above US$2 million. The People’s Bank of China has a similar tool to manage pressures on the yuan by varying the reserve requirement on forward contracts.

“The RBI still has a lot of policy measures it can introduce to prevent the rupee from falling past 97,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “It is likely hoping that these measures buy them time until oil prices pull back yet again.” BLOOMBERG