Reserve Bank of India Deploys Measures to Stabilize Rupee

The Reserve Bank of India implemented a comprehensive set of stabilization measures on October 13 after the Indian rupee hit record lows of nearly 97 against the US dollar. These actions, characterized by SBI Research as a "bazooka," included opening a direct dollar-supply window for three state-run oil marketing companies to move $10-12 billion per month away from the spot market.

To tighten liquidity, the central bank raised daily CRR maintenance to 99% and conducted Rs 25,000 crore in OMO sales. The bank also tightened foreign exchange derivative regulations by prohibiting the rebooking of cancelled contracts and lowering the threshold for derivative positions without underlying exposure from $100 million to $5 million. Additionally, a 20% foreign exchange risk reserve was imposed on hedges held by banks.

The rupee appreciated sharply following these interventions, closing at 95.28. Finance Minister Nirmala Sitharaman stated the RBI will continue efforts to prevent excessive volatility. However, economists noted that durable stability remains dependent on external factors, including high oil prices, US Federal Reserve interest rate hikes, and global tensions.