The Indian rupee is showing signs of recovery after weeks of pressure against the US dollar. The rupee rebound story gained momentum on Wednesday, October 14, as the domestic currency strengthened to 94.95 per dollar in early trade. It had opened at 95.01 against the greenback and gained 0.3% during the session.

The currency has gained nearly 2% this week, following the Reserve Bank of India’s (RBI) latest measures to ease pressure on the foreign exchange market. Traders told Reuters that state-run banks likely sold dollars on the central bank’s behalf to support the rupee. However, whether the recovery will last remains uncertain.  

Why Is the Rupee Recovering Against the Dollar?

The rupee’s recovery comes amid renewed efforts by the government and the RBI to manage currency volatility. Finance Minister Nirmala Sitharaman recently clarified that the central bank is not trying to fix the rupee at a particular exchange rate. Instead, its focus is on limiting sharp currency movements.

RBI Governor Sanjay Malhotra has also emphasized the need to maintain orderly movement in the foreign exchange market. In an interview with Moneycontrol on Tuesday, October 13, he said the recent measures were introduced to curb speculative positions against the rupee.

Malhotra explained that the measures would help ensure currency hedging remains available to businesses with genuine foreign exchange exposure. He also highlighted the link between financial stability and monetary policy.

“The mandate ⁠of price stability cannot be achieved without financial stability, as a stable financial system is ⁠essential for the ‌effective transmission of monetary policy,” Malhotra said.

Key highlights

• The rupee reached 94.95 per dollar in early trade on Wednesday.
• The currency gained nearly 2% during the week.
• The RBI aims to curb speculation and contain volatility rather than fix the exchange rate.

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What RBI Measures Are Supporting the Rupee?

On October 10, the RBI announced a series of measures to ease pressure on the domestic currency. These include a special dollar window for three state-owned oil marketing companies: Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation.

The facility allows these companies to meet their daily dollar requirements through the RBI, reducing their need to purchase dollars in the spot market.

The central bank also tightened rules governing foreign exchange derivatives and introduced a 20% Foreign Exchange Risk Reserve requirement for eligible transactions. These steps aim to discourage speculative activity and strengthen discipline in the currency market.

However, the measures have raised concerns among banks. Financial institutions have flagged the higher costs and liquidity pressure linked to the new requirements. Anil Kumar Bhansali, head of treasury at Finrex LLP, said bankers had sought relief from the RBI but had yet to receive a response.

The latest Rupee rebounds movement suggests the RBI’s intervention may be easing immediate pressure. Still, a sustained recovery will depend on broader market conditions, including oil prices, dollar demand, and foreign capital flows.

For now, the currency’s gains offer some relief. The bigger question is whether the RBI’s measures can keep volatility under control in the coming weeks.