Will RBI’s new measures to support rupee affect overseas investments? Experts explain

The Indian rupee appreciated 93 paise against the US dollar on Monday, marking its steepest single-day gain in more than six months, after the Reserve Bank of India (RBI) announced measures to curb speculative activity in the foreign exchange market.

The domestic currency closed at 95.78 against the dollar, compared with its previous close, after opening at 95.61. During the session, it touched a high of 95.57 and a low of 95.96.

The RBI announced a series of measures on Saturday to strengthen the rupee and improve conditions in the forex market. The steps included tighter rules for foreign exchange derivatives transactions and a requirement for banks to maintain a 20% reserve against dollar purchases exceeding $2 million.

The central bank also directed authorised dealers not to permit users to rebook cancelled foreign exchange derivative contracts involving the Indian rupee, whether deliverable or non-deliverable.

Why has the RBI tightened forex market rules?

Experts said excessive dollar buying and leveraged positions can intensify currency volatility and increase pressure on the rupee.

By raising the cost of certain transactions and restricting the rebooking of cancelled derivative contracts, the RBI aims to discourage speculative activity and promote orderly market conditions.

The measures could influence exchange-rate movements, although the rupee's direction will also depend on factors such as global dollar trends, crude oil prices, foreign investment flows and geopolitical developments.

Vijay Kuppa, CEO at InCred Money, said: “The RBI’s latest measures are aimed at curbing excessive speculation and demand for dollars, and stabilising the rupee, which has come under pressure from elevated crude oil prices, foreign capital outflows and global uncertainty.”