RBI Targets Importers to Curb Rupee Slide, Stabilize Economy
India’s importers are in the spotlight as the Reserve Bank of India (RBI) intensifies efforts to stabilize the rupee. In September, importers amassed a record volume of currency hedges, signaling their anticipation of further rupee depreciation. Forward dollar purchases, a gauge of their demand, soared 44% to an average of $64 billion a month this year, compared with 2025, according to Clearing Corp. of India data.
RBI’s Expanding Strategy
The RBI’s focus has shifted beyond financial markets to the broader $4 trillion economy. Despite measures like a $133 billion diaspora deposit program and a key policy rate hike, the rupee remains under pressure, trading near 97 to the dollar. Governor Sanjay Malhotra noted in a recent interview that the central bank observed significant speculative activity in currency derivatives, with forex markets becoming “unduly pessimistic” about India’s economy.
The central bank’s latest moves target state-owned oil refiners, which require approximately $10 billion monthly for crude imports. These refiners are now excluded from the market, and hedging has become more costly for companies. The RBI’s actions aim to curb speculative demand while addressing the real economy’s challenges, particularly the rising import bill.
Impact and Challenges
The RBI’s moves are having an impact. The rupee jumped 0.5% to close at 95.2838 per dollar on Tuesday, adding to a 1% gain in the previous session. However, the challenge persists, as India’s trade deficit is expected to widen to around $30 billion in September, driven by a rising oil-import bill, which climbed to $10.8 billion from $9.9 billion in August. A weaker rupee not only inflates the import bill but also deters foreign capital needed to finance the current-account deficit.
The forward market highlights the issue, with forward dollar purchases reaching $76.8 billion in September, surpassing exporter sales of $41.3 billion. Purchases also topped March’s $75.9 billion, a level that contributed to the RBI’s earlier sweeping measures to blunt dollar demand.
Importer Response and Market Adjustments
Importers, facing higher hedging costs due to new reserve requirements, may opt for smaller hedges or shorter maturities. Some demand could shift offshore, while others might delay hedging, purchasing dollars closer to payment dates. Saturday’s steps included a risk reserve requirement under which lenders must set aside 20% of the rupee equivalent for any forex derivative transaction exceeding $2 million.
Cancelled forward contracts can no longer be rebooked, while the limit on derivative transactions without an underlying asset was cut to $5 million from $100 million. For companies, this means hedging the rupee will cost more, with IDFC First Bank estimating a 1.5% increase in hedging costs. “Making reasonable forex risk management more cumbersome also reverses part of India’s decades-long market liberalisation,” analysts noted.
