{"id":128994,"date":"2026-10-15T11:40:39","date_gmt":"2026-10-15T06:10:39","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=128994"},"modified":"2026-10-15T11:40:39","modified_gmt":"2026-10-15T06:10:39","slug":"rupee-depreciation-rbi-measures-to-control-forex-volatility","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rupee-depreciation-rbi-measures-to-control-forex-volatility\/","title":{"rendered":"Rupee Depreciation &#8211; RBI Measures to Control Forex Volatility"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><strong>Rupee Depreciation Latest News<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">On October 10, 2026, the Reserve Bank of India announced regulatory measures to curb speculative activity in the foreign exchange market and manage volatility amid geopolitical uncertainty and elevated crude oil prices.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Causes of Rupee Depreciation<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Rupee depreciation refers to a decline in the value of the Indian rupee relative to another currency, such as the US dollar. The rupee&#8217;s value is influenced by domestic economic conditions, international capital flows and global currency movements.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">As per the RBI\u2019s latest report, <\/span><b>the rupee had depreciated by approximately 7% since the beginning of 2026<\/b><span style=\"font-weight: 400;\">, reflecting several structural and external pressures.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Strong US dollar:<\/b><span style=\"font-weight: 400;\"> Global demand for the dollar and elevated international yields make dollar-denominated assets more attractive.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>High crude oil prices:<\/b><span style=\"font-weight: 400;\"> India&#8217;s dependence on imported energy increases its dollar demand and import expenditure when oil prices rise.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Foreign portfolio outflows:<\/b><span style=\"font-weight: 400;\"> Withdrawals by foreign investors from Indian equity and debt markets increase demand for foreign currency.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Geopolitical uncertainty:<\/b><span style=\"font-weight: 400;\"> The prolonged conflict in West Asia has disrupted energy supply chains and contributed to fluctuations in crude oil prices.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Interest rate differentials:<\/b><span style=\"font-weight: 400;\"> Differences between interest rates in advanced and emerging economies influence international investment decisions and currency movements.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>RBI\u2019s Measures to Manage Forex Volatility<\/strong><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">The RBI has announced regulatory changes aimed at improving market discipline and reducing speculative demand for foreign currency.<\/span><\/li>\n<li><b>Restrictions on cancelled derivative contracts<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Authorised Dealers (ADs) will not permit users to rebook INR-linked foreign exchange derivative contracts cancelled after the directions were issued. Contract rollovers at maturity remain permitted, subject to regulatory requirements.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Reduction in the exposure threshold<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The threshold for undertaking foreign exchange derivative transactions without establishing an underlying exposure was reduced from <\/span><b>$100 million to $5 million<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The corresponding threshold for INR-linked exchange-traded currency derivatives was also reduced to $5 million across recognised stock exchanges.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Additional documentation requirements<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">ADs must obtain and retain an undertaking from users confirming that the same underlying exposure has not been hedged through another dealer.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Foreign Exchange Risk Reserve<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">For eligible INR-linked foreign exchange derivative contracts with a notional value exceeding $2 million, Authorised Dealers must maintain a <\/span><b>Foreign Exchange Risk Reserve (FERR)<\/b><span style=\"font-weight: 400;\"> with the RBI in cash, equivalent to 20% of the rupee value of the notional amount.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-weight: 400;\">Together, these measures <\/span><b>seek to discourage excessive speculative positions<\/b><span style=\"font-weight: 400;\">, improve transparency and strengthen risk management in the foreign exchange market.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Other RBI Interventions<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The RBI has also used several measures to address currency volatility and improve the availability of foreign exchange.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Dedicated dollar facility for oil marketing companies:<\/b><span style=\"font-weight: 400;\"> Direct dollar supplies to oil marketing companies (OMCs) are intended to divert their bulk crude purchases away from the interbank market and moderate short-term currency pressure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Foreign exchange swaps:<\/b><span style=\"font-weight: 400;\"> Sell-buy swaps in the forward market help manage rupee liquidity and foreign exchange conditions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>External Commercial Borrowings:<\/b><span style=\"font-weight: 400;\"> Liberalisation of ECB rules can expand access to foreign funding for eligible Indian borrowers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>NRI deposits:<\/b><span style=\"font-weight: 400;\"> Measures to encourage Non-Resident Indian deposits can help mobilise foreign currency resources.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Position limits on banks:<\/b><span style=\"font-weight: 400;\"> Restrictions on banks&#8217; net open foreign exchange positions aim to curb excessive proprietary trading.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>International rupee invoicing:<\/b><strong> <a href=\"https:\/\/vajiramandravi.com\/current-affairs\/vostro-account\/\" target=\"_blank\">Vostro account<\/a><\/strong><span style=\"font-weight: 400;\"> arrangements can facilitate international trade settlements in rupees.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Implications for the Economy<\/strong><\/h2>\n<ul>\n<li><b>Benefits of intervention<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">RBI intervention can reduce excessive currency volatility and limit the impact of abrupt exchange-rate movements on businesses and households.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">A more stable rupee can help moderate imported inflation, particularly for crude oil, electronics and edible oils. It can also reduce uncertainty for companies with foreign currency liabilities and improve the predictability of international transactions.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Costs and limitations<\/b>\n<ul>\n<li><b>Foreign exchange reserves:<\/b><span style=\"font-weight: 400;\"> Direct dollar supplies to OMCs may initially place pressure on reserves, even as they reduce demand in the interbank market.<\/span><\/li>\n<li><b>Higher hedging costs:<\/b><span style=\"font-weight: 400;\"> The new reserve requirement and tighter derivative rules may increase banks&#8217; funding costs, potentially widening spreads for customers.<\/span><\/li>\n<li><b>Temporary relief:<\/b><span style=\"font-weight: 400;\"> Currency interventions cannot eliminate India&#8217;s underlying oil import bill or prevent foreign investors from withdrawing capital.<\/span><\/li>\n<li><b>Future repayment risks:<\/b><span style=\"font-weight: 400;\"> Foreign currency deposits and associated swaps can create maturity-related liquidity pressures if large amounts fall due together.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Economic Significance of Rupee Stability<\/strong><\/h2>\n<ul>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Exchange-rate stability matters for India&#8217;s macroeconomic management through several channels.<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><b>Inflation:<\/b><span style=\"font-weight: 400;\"> A weaker rupee increases the domestic cost of imported goods and commodities, potentially contributing to inflation.<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><b>Current account balance:<\/b><span style=\"font-weight: 400;\"> Higher oil import expenditure increases the value of imports and can widen the current account deficit if export earnings and other receipts do not offset the increase.<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><b>Corporate and banking stability:<\/b><span style=\"font-weight: 400;\"> Companies with unhedged foreign currency borrowings face higher repayment costs when the rupee depreciates, potentially increasing credit risks for lenders.<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><b>Capital flows:<\/b><span style=\"font-weight: 400;\"> Sharp currency movements and expectations of further depreciation can influence investor sentiment and encourage additional capital outflows.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/explained-rbis-worries-about-pressure-on-rupee-and-measures-to-curb-volatility-in-forex-market\/article71574231.ece\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Understand the causes of rupee depreciation, RBI\u2019s foreign exchange interventions, new derivative regulations and their implications for inflation and financial stability.<\/p>\n","protected":false},"author":21,"featured_media":104516,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,4337,22,59],"class_list":["post-128994","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-mains-articles","tag-rupee-depreciation","tag-upsc-current-affairs","tag-upsc-mains-current-affairs","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/128994","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=128994"}],"version-history":[{"count":3,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/128994\/revisions"}],"predecessor-version":[{"id":129020,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/128994\/revisions\/129020"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/104516"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=128994"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=128994"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=128994"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}