RBI May Tighten Forex Derivatives Rules Further to Curb Speculation, Says Governor Sanjay Malhotra

The Reserve Bank of India (RBI) may introduce more measures to curb speculative trading in the foreign exchange market, Governor Sanjay Malhotra said on Tuesday, as per news reports.  

He said the central bank was prepared to act if needed to maintain orderly movement in the rupee. Malhotra said the measures introduced since October 10, 2026, were not capital controls.  

The restrictions were to ensure that foreign exchange transactions were used for genuine hedging needs rather than speculative positions. 

20% Cash Reserve Requirement on Derivatives 

The RBI initially imposed a 20% cash reserve requirement on banks for certain foreign exchange derivatives used by clients to hedge current-account exposures.  

The requirement was later extended to all rupee-linked FX derivatives in which authorised banks buy foreign currency against the rupee to hedge their own assets and liabilities. Malhotra said the decision followed observations of excessive dollar-buying positions in the forex market. 

The central bank also found that a large number of trades were being cancelled and rebooked on the same day. In some cases, around one-third of trades were closed or cancelled on the day they were entered into. 

Oil Companies Face New Dollar Purchase Rules 

The RBI has also directed oil companies to meet their dollar requirements through a special facility. These steps followed pressure on the rupee, which had moved towards record lows. 

The central bank has also intervened in the currency market to support the domestic unit. Further restrictions were imposed on certain derivative transactions over the weekend and on Monday. 

Repo Rate and Financial Stability 

Malhotra did not say whether the Monetary Policy Committee would consider another repo rate increase to support the rupee. Earlier this month, the committee raised the benchmark rate by 25 basis points to contain rising inflation. 

He said price stability could not be achieved without financial stability, which is necessary for monetary policy to work effectively. Malhotra also said the RBI did not target a particular rupee exchange rate, as the currency's value depends on demand and supply. 

Rupee Rises in Offshore Trading 

The rupee rose as much as 0.8% to 95.01 per dollar in the previous session. On Wednesday, offshore dollar-rupee non-deliverable forwards eased by up to 0.1% to 95.36. 

Malhotra said the market appeared overly pessimistic about the rupee. The RBI has left open the possibility of further measures against speculative activity. 

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Conclusion  

The RBI has tightened foreign exchange rules to curb speculative positions and support orderly movement in the rupee. Governor Sanjay Malhotra said further measures remain an option if needed. 

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