India's central bank tightens forex rules as rupee hits record lows

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Regulator restricts foreign exchange transactions

One of the key measures is the introduction of a foreign exchange risk reserve requirement. Banks will have to deposit rupee funds with the central bank equal to 20% of the notional value of each transaction exceeding $2 million.

In addition, the RBI has prohibited the rebooking of previously canceled rupee foreign exchange derivative contracts. The limit for transactions without proof of underlying exposure has been reduced from $100 million to $5 million.

Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, described the new measures as effectively bringing a significant portion of the foreign exchange market to a halt. He estimated that the restrictions could strengthen the rupee by at least 1% as early as October 12.

Over the four weeks ending October 2, India's foreign exchange reserves fell by $51 billion as the central bank sold dollars to support the national currency. The rupee continued to weaken despite $133 billion raised through a deposit program targeting the Indian diaspora.

The RBI introduced similar measures in 2013, when it provided approximately $12 billion to oil refiners to stabilize the foreign exchange market. However, this is the first time a foreign exchange risk reserve requirement has been introduced.

Anindya Banerjee, head of commodity and currency derivatives research at Kotak Neo, described the current package as the most extensive since 2013.

Economic measures come amid tensions with the U.S.

The tightening of foreign exchange regulations comes amid growing tensions between New Delhi and Washington. Beyond economic issues, disagreements have extended to labor migration rules and the employment of Indian professionals in the United States.

U.S. authorities have suspended the processing of green card applications for certain employers using the H-1B visa program. The program allows companies to hire foreign professionals, including those from India, to work in the United States.

Indian officials also criticized remarks by U.S. Vice President JD Vance concerning labor migration, calling them deeply offensive. New Delhi emphasized that Indian professionals are highly skilled and make a significant contribution to the U.S. economy.

Earlier, we reported that the expansion of data center networks in India has faced opposition from local residents. The issue emerged amid growing investment in artificial intelligence infrastructure.

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