Rupee Near 97 Vs Dollar, RBI Unveils Measures To Curb Speculation, Pg3

Key Highlights:

• The Reserve Bank of India (RBI) introduced measures to defend the rupee and curb speculation, including a Foreign Exchange Risk Reserve (FERR).
• The RBI opened a special dollar window for Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation.
• This facility allows the three Public Sector Oil Marketing Companies (OMCs) to meet their entire daily dollar requirements directly from the RBI.
• The rupee was trading near 97 against the dollar, closing at 96.73 on Friday.
• India's forex reserves declined by $12.95 billion to $734.60 billion in the week ending October 2.

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Detailed Insights:

• The FERR mechanism requires banks to set aside 20% of foreign exchange risk in cash with the RBI.
• The special dollar window became effective on October 12, 2026, and will remain in place until further notice.
• This intervention aims to cushion the impact of crude oil prices surging above $100 a barrel on India's oil sector.
• India imports over 88% of its crude oil requirements, making its economy vulnerable to global price fluctuations and rupee depreciation.
• Rising crude prices contribute to imported inflation, with retail inflation forecast to touch 5.2% in 2026-27.
• The RBI recently hiked the repo rate by 25 basis points to 5.50% on October 7, indicating a rate hiking cycle to combat inflation.
• The direct dollar supply to OMCs is expected to ease pressure on the rupee by reducing their demand in the open market.

Key Concepts Involved:

• Foreign Exchange Risk Reserve (FERR): A mechanism requiring banks to set aside a percentage of foreign exchange risk in cash with the central bank.
• Special Dollar Window: A direct facility provided by the central bank to specific entities to meet their foreign currency requirements, bypassing the open market.
• Imported Inflation: Inflation caused by an increase in the price of imported goods and services, often due to currency depreciation or rising global commodity prices.
• Repo Rate: The rate at which the central bank lends money to commercial banks in the event of any shortfall of funds.