The Indian rupee strengthened sharply against the US dollar on Monday, October 12. This comes after the Reserve Bank of India (RBI) introduced measures to curb dollar demand and stabilize the domestic currency. However, government bonds extended their decline as investors assessed tighter monetary conditions, liquidity measures and the possibility of further interest rate increases.
Rupee Rises To 95.76 Against Dollar
The rupee opened at 95.76 against the dollar, compared with Friday’s close of 96.73, marking an appreciation of nearly 1%. The rupee was among Asia’s strongest-performing currencies during the session after the RBI announced its latest measures.
The RBI announced the measures on Saturday as the rupee approached record lows amid elevated crude oil prices, foreign capital outflows and strong demand for dollars. The currency had lost around 6.6% of its value against the dollar so far in 2026, despite earlier central bank interventions.
The central bank introduced a special dollar window for three state-owned oil marketing companies:
Indian Oil Corporation
Hindustan Petroleum Corporation
Bharat Petroleum Corporation.
The facility, effective October 12, allows the companies to meet their daily dollar requirements through designated banks.
RBI Targets Oil Companies’ Dollar Demand
The arrangement aims to redirect a significant source of dollar demand away from the spot foreign exchange market. The RBI reduced the permitted limit for certain derivative transactions without underlying exposure from USD 100 million to USD 5 million. Banks must maintain a 20% cash reserve against specified foreign exchange contracts exceeding USD 2 million.
The changes could raise hedging costs for businesses and reduce demand for forward-dollar contracts. The sell-off continued on Monday, with the yield on the benchmark 2036 government security rising to 7.3553%, its highest level since March 2023. Bond prices move inversely to yields, meaning the increase reflected further declines in bond prices.
Market participants also assessed the impact of the RBI’s planned open market sale of government securities worth Rs. 25,000 crore and tighter daily cash reserve requirements.
Also Read: RBI Rupee Defense: USD 5 Million Forex Limit Replaces USD 100 Million