RBI Cracks Down on Importer Dollar Hedging to Stop Rupee Slide

The Reserve Bank of India has expanded its effort to defend the rupee by imposing strict restrictions on corporate foreign exchange hedging. The currency recently dropped toward 97 per U.S. dollar, extending a nearly 6 percent fall this year and a 13 percent decline over two years. Under new rules, lenders must set aside a 20 percent reserve requirement on forex derivative deals over $2 million, canceled forward contracts can no longer be rebooked, and unbacked transaction limits were cut from $100 million to $5 million.

The central bank also removed state-owned oil refiners, which require roughly $10 billion monthly for crude imports, from the spot market to curb heavy dollar demand. Importers bought a record $76.8 billion in forward dollars in September, far outpacing exporter sales. While the rules helped the rupee recover 0.5 percent to 95.2838 per dollar, IDFC First Bank Ltd. (NSE:IDFCFIRSTB) estimates hedging costs could rise by 1.5 percent. Analysts at Barclays PLC (LSE:BARC), Citigroup Inc. (NYSE:C), and Nomura Holdings, Inc. (TSE:8604) warned that higher costs could complicate corporate risk management.

Investors will monitor whether the administrative limits can sustain rupee stability against persistent trade pressure. India's trade deficit expanded to an estimated $30 billion in September, driven by a $10.8 billion net oil import bill. Future currency strength will depend heavily on global crude price trends and foreign capital flows.