Rupee appreciates 80 paise at open amid RBI's intervention

The Indian rupee opened 80 paise stronger at ₹95.82 against the dollar on Monday, marking an improvement from ₹96.71 the previous day. This surge in value was largely attributed to the Reserve Bank of India (RBI) intervening in the foreign exchange market to tighten rules over the weekend. The central bank reduced the threshold for entering positions without adequate exposure to $5 million equivalents from the previous $100 million mark.

Additionally, the RBI introduced a foreign exchange reserve requirement of 20 percent of the notional value for derivative contracts surpassing $2 million.

Furthermore, the RBI established a dedicated oil window, allowing daily dollar requirements for oil marketing companies such as BPCL, HPCL, and IOCL. By supplying dollars to these entities, the RBI aimed to alleviate pressure on the rupee in the interbank market. According to Anil Bhansali, Head of Treasury at Finrex Treasury Advisors, this move could enable the rupee to gradually appreciate towards ₹95 over time, as exporters would also contribute to selling rupees.

While a quarter-point rate hike earlier in the week did not sufficiently curb the rupee's depreciation, the RBI's latest measures are anticipated to provide some relief. Amit Pabari, Managing Director of CR Forex Advisors, noted that the new policies, including direct dollar provision to IOC, HPCL, and BPCL, a 20 percent foreign exchange reserve requirement for specific derivative contracts exceeding $2 million, and tighter forex derivatives regulations, indicate a shift from rate adjustments to managing dollar demand and currency positioning.

The RBI's focus on these measures signals a commitment to defending the rupee at around 97.00. However, foreign institutional investors (FIIs) continue to sell Indian equities, resulting in a dollar outflow. On October 9, FIIs divested ₹3,568 crore worth of Indian stocks across the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), and Multi-Stock Exchange of India (MSEI), as per MSEI data.