India unveils tough curbs on dollar demand to defend rupee

India has introduced new measures to support the weakening rupee, redirecting oil companies' dollar purchases away from the spot market and tightening hedging rules. The Reserve Bank of India (RBI) has opened a special window to meet the daily dollar requirements of three state-run oil-marketing companies, easing pressure on the spot market.

Additionally, the RBI has raised the cost of protection against further rupee weakness and mandated foreign exchange dealers to maintain a 20% "foreign exchange risk reserve" on derivative contracts used to buy foreign currency against the rupee. These measures aim to reduce volatility and discourage excessive hedging, but they may also deplete the central bank's foreign exchange reserves.

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