The rupee's value against the dollar is set in the market, but the RBI is the largest player in that market. It buys dollars when money floods in, sells them when money rushes out, and uses forwards, swaps and rules on banks to slow sharp moves. Its stated aim is to keep conditions orderly and curb excessive volatility, not to defend any particular level. This part explains how India got from a fixed rupee to a managed float, how the RBI intervenes and what that does to rupee liquidity, how to read the REER and NEER, and what happened in the three big stress episodes of 2013, 2022 and 2026. On 23 October 2026 the reference rate was ₹94.94 per US dollar, after a record of ₹96.84 on 20 May 2026.
This part builds on the functions of the RBI, where forex management is one of the RBI's seven roles, and on the exchange rate channel in how monetary policy works in India. The reserves themselves (size, composition, adequacy) are covered in India's forex reserves. How a dollar sale drains rupee liquidity links directly to open market operations and liquidity and the RBI balance sheet.
In the news
- 23 October 2026: reserves down to US$721.0 billion. Reserves for the week ended 16 October were US$64.7 billion below the record of US$785.7 billion set on 4 September, as the RBI sold dollars to support the rupee. Why it matters for the exam: intervention shows up as a fall in reserves, and the record figure and date are likely to be asked.
- 10 October 2026: special dollar window and curbs on speculation. The RBI opened a window to sell dollars directly to IOC, HPCL and BPCL through designated banks from 12 October, and the same day tightened forex derivative rules: a 20% cash Foreign Exchange Risk Reserve, a cut in the "no proof of underlying" limit from US$100 million to US$5 million, and a ban on rebooking cancelled rupee contracts. The reference rate moved from 96.61 on 9 October to 95.75 on 12 October. Why it matters for the exam: a near-copy of the August 2013 oil-company window.
- 7 October 2026: repo hike, rupee near its record low. The MPC raised the repo rate to 5.50%, and the Governor said the RBI "remain[s] committed to ensuring orderly adjustments to the exchange rate". FPIs had pulled out a net US$10.3 billion in April to 5 October. Why it matters for the exam: a rate rise supports the currency through the interest rate differential.
- 2 September 2026: US$136.4 billion through the swap window. Provisional inflows under the FCNR(B), ECB and OFCB swap facility reached US$136.4 billion by 31 August, when the FCNR(B) window closed, including US$127.2 billion of FCNR(B) deposits. Why it matters for the exam: about four times the roughly US$34 billion raised in 2013.
- 8 June 2026: FCNR(B) swap at par. The RBI offered banks a USD/INR swap for fresh 3–5-year FCNR(B) deposits, with both legs at the FBIL reference rate, so the RBI bears the full hedging cost. Why it matters for the exam: the 2013 window charged a concessional 3.5% a year; the 2026 one charged nothing.
- 20 May 2026: record low. The reference rate hit ₹96.8441, the weakest ever, as oil prices surged during the war involving Iran and foreign investors sold Indian assets. Why it matters for the exam: the rupee crossed 92 on 4 March, 95 on 30 April and 96 on 18 May 2026.
- 3 December 2025: rupee crosses 90. The reference rate was 90.27, the first time above 90, after it had crossed 88 on 1 September 2025. Why it matters for the exam: 2025 ended at 89.92, against 85.62 a year earlier.
- 26 November 2025: IMF calls India's regime "crawl-like". The IMF's 2025 Article IV staff report kept India's de jure regime as floating but reclassified the de facto regime from "stabilised" to a crawl-like arrangement. Why it matters for the exam: de jure is what a country says, de facto is what the IMF observes.
From pegs to a managed float
The sterling and basket pegs
For most of its history the rupee was fixed. At Independence it was tied to sterling at 1 shilling 6 pence (₹13.33 per pound). It moved with sterling in the 1949 devaluation, was devalued by 36.5% in June 1966, and after the end of the Bretton Woods system in 1971 was again pegged to sterling.
On 25 September 1975 the RBI linked the rupee to "movements in a basket of selected foreign currencies" of India's major trading partners. The weights were not published. In practice the RBI adjusted the rate in small steps, and the rupee drifted down through the 1980s as Indian inflation ran above that of its partners.
1991: devaluation and LERMS
The 1991 balance of payments crisis ended the basket regime. The RBI devalued the rupee in two steps on 1 and 3 July 1991, about 18% in dollar terms in all.
In March 1992 came the Liberalised Exchange Rate Management System (LERMS), a dual exchange rate. Exporters and other earners converted 60% of their foreign currency at the market rate and surrendered 40% at the official rate, which the government used for essential imports such as oil and fertiliser. LERMS was a bridge: it let the market find a price while protecting priority imports.
1993 and 1994: a market rate and current account convertibility
In March 1993 the two rates were unified into a single market-determined exchange rate. In August 1994 India accepted Article VIII of the IMF's Articles of Agreement and made the rupee convertible on the current account: payments for trade, services, interest and remittances became free of exchange restrictions.
The capital account remains only partly open. Foreign direct and portfolio investment, external commercial borrowing and outward investment are allowed within limits. Two committees under S.S. Tarapore (1997 and 2006) recommended a phased road to fuller capital account convertibility, but India has moved step by step instead. The Foreign Exchange Management Act, 1999 (FEMA) replaced FERA, 1973 from June 2000. Its stated objects include "promoting the orderly development and maintenance of foreign exchange market in India".
The managed float today
Since 1993 India has had what economists call a managed float. Supply and demand in the interbank market set the rate each day, and the RBI is free to buy or sell. The RBI's Annual Report 2025-26 sets its goal as to "curb excessive volatility in the USD/INR exchange rate" and to ensure "orderly market conditions". The RBI does not announce a target level or band. It points to the NEER and REER as indicators of fair value, not as targets.
How the IMF classifies India
The IMF sorts every member's regime into ten categories: hard pegs, soft pegs (including "stabilised" and "crawl-like" arrangements), floating, free floating and a residual "other managed" group. It separates two things:
- De jure: what the country says its regime is. India's is floating.
- De facto: how the rate actually behaves. The IMF uses a statistical rule. A stabilised arrangement is one where the spot rate stays within a 2% band for six months or more (outliers aside). A crawl-like arrangement is one where it stays within 2% of a statistically identified trend for six months or more.
The classification has moved several times in recent years. India was classed as floating until the IMF's 2023 review labelled it a stabilised arrangement, covering a period from December 2022, when the rupee barely moved for months. Indian authorities disputed this, saying interventions only tempered volatility and did not target a level. In its 2025 Article IV staff report (26 November 2025) the IMF reclassified India as a crawl-like arrangement, because the rupee was now drifting down along a steady trend. Deputy Governor Poonam Gupta said the RBI was not reading too much into it and that India runs a managed float like most emerging markets. The IMF itself says the label "does not imply statements or views on future or intended policies". No 2026 Article IV report had been published by 24 October 2026.
How the RBI intervenes
The tools
Spot market. The RBI buys or sells dollars for delivery in two days through banks. This is the most direct tool and moves reserves at once.
Forwards and futures. The RBI can buy or sell dollars for a future date. A forward sale supports the rupee without using reserves today, but adds to the forward book, a commitment to deliver dollars later. The RBI also operates in exchange-traded currency futures.
Offshore NDF market. Much rupee trading happens offshore, in Singapore, London and Dubai, through non-deliverable forwards (NDFs), which are settled in dollars without the rupee changing hands. The Annual Report 2025-26 says the RBI intervened "through operations in the onshore/offshore OTC" and exchange-traded currency derivatives segments, which covers the NDF market.
FX swaps. In a buy/sell swap the RBI buys dollars from banks now and sells them back later. It adds rupee liquidity for the term of the swap and is used as a liquidity tool: US$5 billion was announced on 5 December 2025 and US$10 billion for 13 January 2026, both for three years. A sell/buy swap works the other way: the RBI sells dollars now and buys them back later, which supports the rupee and drains rupees today. Traders reported the RBI using sell/buy swaps in 2026 alongside spot sales.
Targeted windows and rules. The RBI can open a window for large dollar buyers (the oil companies in 2013 and 2026), subsidise hedging for inflows (the FCNR(B) swaps of 2013 and 2026), and change the rules for banks and hedgers (position limits, rebooking, cash reserves).
Why selling dollars drains rupees
When the RBI sells US$1 billion at ₹95, a bank pays it ₹9,500 crore. That money comes out of the bank's current account with the RBI, so bank reserves fall by the same amount. On the RBI's balance sheet, foreign currency assets fall on one side and bank deposits fall on the other.
So heavy dollar sales tighten rupee liquidity and push overnight rates up. If the RBI does not want that, it sterilises: it puts the rupees back by buying government bonds (OMO purchases), running VRR auctions, cutting CRR or doing buy/sell swaps. Dollar purchases work the other way: they add rupees, which the RBI may soak up through OMO sales, VRRR auctions or the SDF.
Worked example 1: the liquidity cost of defending the rupee
Reserves fell from US$785.7 billion on 4 September 2026 to US$721.0 billion on 16 October, a drop of US$64.7 billion. Part of this was valuation (changes in gold prices and in other currencies against the dollar), so assume for illustration that US$40 billion was net dollar sales at an average of ₹96.
- Rupees drained = US$40 billion × ₹96 = ₹3,840 billion.
- ₹3,840 billion = ₹3.84 lakh crore (since ₹1 lakh crore = ₹1,000 billion).
In September 2026 the banking system had a surplus of about ₹10 lakh crore, largely because the FCNR(B) inflows had been converted into rupees. That surplus absorbed the drain: the RBI could sell dollars without squeezing overnight rates.
Worked example 2: the Foreign Exchange Risk Reserve
Under the October 2026 rules, a bank must keep 20% of the rupee value of an eligible contract as cash with the RBI. Eligible contracts are those above US$2 million that hedge current account payments where the customer buys foreign currency against the rupee.
An importer books a forward to buy US$10 million at ₹95.
- Rupee value = 10,000,000 × 95 = ₹95 crore.
- Reserve = 20% × ₹95 crore = ₹19 crore, held with the RBI until the contract ends.
The reserve makes it costly to book large forward dollar purchases early, which is the aim: to slow the rush of importers buying dollars ahead of a fall.
REER and NEER
What they measure
The bilateral rate (₹ per US$) tells you about one currency. The RBI also tracks the rupee against a basket of 40 currencies of trading partners:
- NEER (nominal effective exchange rate): a weighted average of the rupee's exchange rates against the 40 currencies. Weights are based on trade shares.
- REER (real effective exchange rate): the NEER adjusted for inflation differentials, using CPI. Roughly, REER = NEER × (Indian prices ÷ partner prices).
In the RBI's indices, a rise means the rupee has appreciated, and a fall means it has depreciated. The base year is 2015-16 = 100. A REER well above 100 suggests the rupee is overvalued relative to the base year, which hurts export competitiveness. A REER below 100 suggests undervaluation.
The data
| Financial year | NEER (40-currency, trade-weighted) | REER (40-currency, trade-weighted, CPI) |
|---|---|---|
| 2010-11 | 125.13 | 100.53 |
| 2013-14 | 96.75 | 92.13 |
| 2015-16 | 99.98 | 99.97 |
| 2017-18 | 103.24 | 105.95 |
| 2022-23 | 91.20 | 102.92 |
| 2024-25 | 91.01 | 105.41 |
| 2025-26 (provisional) | 84.72 | 97.45 |
Reading the gap
Between 2010-11 and 2024-25 the NEER fell by about 27%, but the REER rose by about 5%. The rupee lost value in nominal terms, yet Indian prices rose faster than partners' prices by even more, so in real terms the rupee became stronger. This was the core of the overvaluation debate: in 2024-25 the REER was 105.4, and several economists argued that the RBI's resistance to depreciation was hurting exporters.
The 2025-26 fall changed the picture. The NEER dropped about 7% in one year and the REER fell to 97.45, below the base. With the rupee weaker still in 2026, the debate has turned to whether it is now undervalued. A REER level alone cannot settle this: it depends on the base year, the price index used (CPI or WPI) and the weights. The RBI therefore treats REER as one indicator among several.
Worked example 3: what the REER and NEER imply
From 2015-16 (both about 100) to 2025-26, the NEER fell to 84.72 and the REER to 97.45. Using REER = NEER × relative prices:
- Relative prices = REER ÷ NEER = 97.45 ÷ 84.72 = 1.150.
- So Indian consumer prices rose about 15% more than the trade-weighted average of partners' prices over the decade.
- The rupee's nominal fall of about 15% (100 to 84.72) roughly offset that, which is why the real rate ended near its base.
Worked example 4: how much did the rupee fall?
The reference rate was ₹85.6232 on 31 December 2024 and ₹89.9198 on 31 December 2025.
- Rise in the dollar's price in rupees = 89.9198 ÷ 85.6232 − 1 = +5.02%.
- Fall in the rupee's value in dollars = 85.6232 ÷ 89.9198 − 1 = −4.78%.
The two numbers differ because the base differs. "The rupee depreciated by 4.8%" and "the dollar rose 5.0% against the rupee" describe the same move. Exams usually want the rupee's depreciation, which is the old rate divided by the new rate, minus one.
Three stress episodes
2013: the taper tantrum
In May 2013 the US Federal Reserve signalled it would start tapering its bond purchases. Money flowed out of emerging markets, and India was among the "fragile five" with a high current account deficit and high inflation. The rupee fell to a then record of 68.85 on 28 August 2013.
The RBI's response came in stages:
- July 2013: it widened the gap between the MSF and repo rate to 300 bp to squeeze rupee liquidity and make speculation costly (see repo, reverse repo and SDF).
- August 2013: a special window to sell dollars to IOC, HPCL and BPCL through swaps, taking their large demand out of the market.
- September 2013: after Raghuram Rajan became Governor on 4 September, a swap window for fresh FCNR(B) deposits of three years or more, at a concessional 3.5% a year, plus a swap for banks' overseas borrowing. The windows ran to 30 November 2013 and raised about US$34 billion.
The rupee recovered, and the FCNR(B) deposits matured from September 2016, by which time the RBI had covered them with forward purchases.
2022: war and Fed hikes
In 2022 Russia's invasion of Ukraine pushed up oil prices and the Fed raised rates fast. The rupee's reference rate went from 74.30 at the end of 2021 to 82.79 at the end of 2022, a fall of about 10%. It crossed 80 on 29 August 2022 and peaked at 83.20 on 20 October 2022. The RBI sold reserves heavily and on 11 July 2022 set up the framework for trade settlement in rupees through Special Rupee Vostro Accounts.
After 2022 the rupee hardly moved for many months, which is why the IMF called the regime "stabilised".
2025–26: tariffs, war and the record low
In 2025 the rupee weakened under steep US tariffs on Indian goods, portfolio outflows and a strong dollar. It crossed 88 on 1 September and 90 on 3 December 2025, and ended the year at 89.92.
In 2026 the pressure intensified. After the war involving Iran began at the end of February, oil prices rose above US$100 a barrel and foreign investors sold Indian equities. The reference rate crossed 92 on 4 March, 95 on 30 April and set a record 96.8441 on 20 May 2026. The RBI's response combined almost every tool:
- Rules on banks (from April 2026): banks had to keep their rupee net open positions in the onshore deliverable market within US$100 million at the end of each business day, from 10 April, to curb speculative positions.
- Inflows (June 2026): the FCNR(B) swap at par and swaps for ECBs and OFCBs (see below).
- Spot and forward sales: reserves fell from the record US$785.7 billion (4 September) to US$721.0 billion (16 October).
- Rates (October 2026): a 25 bp repo hike to 5.50% on 7 October.
- Direct supply and derivative curbs (10 October 2026): the oil-company window and the derivative rules described above.
After the 10 October package the rupee strengthened from 96.61 to about 94.7–95.0 within ten days.
The FCNR(B) swap facility of 2026
FCNR(B) (Foreign Currency Non-Resident (Bank)) deposits are term deposits that non-residents keep with Indian banks in foreign currency. The depositor bears no exchange rate risk; the bank does. To lend the money in rupees, the bank must hedge, and the cost of that hedge (the forward premium) has made FCNR(B) deposits unattractive. Net inflows fell from US$7.08 billion in 2024-25 to under US$1 billion in 2025-26.
The RBI's circular of 8 June 2026 offered a fix:
| Feature | 2013 window | 2026 facility |
|---|---|---|
| Announced | 4 September 2013 | 5 June 2026 (circular 8 June) |
| Eligible deposits | Fresh FCNR(B), 3 years and above | Fresh FCNR(B), 3 to 5 years |
| Swap price | Concessional 3.5% a year | At par: both legs at the FBIL reference rate |
| Window | To 30 November 2013 | Deposits to 31 August 2026 (brought forward from 30 September) |
| Other inflows covered | Banks' overseas borrowing | ECBs and OFCBs, to 31 December 2026 |
| Amount raised | About US$34 billion | US$136.4 billion by 31 August (FCNR(B) US$127.2 billion) |
How it works: the bank sells the deposit dollars to the RBI at the reference rate and gets rupees to lend. At maturity it buys the same dollars back at the same rate. The RBI absorbs the forward premium, which in a market with Indian rates well above US rates is worth a few per cent a year. Banks could therefore offer NRIs higher dollar deposit rates.
The facility helped in two ways: it pushed reserves to a record and, as the dollars were converted, it added a large amount of rupee liquidity. It also has a cost. The RBI is committed to selling the dollars back when the deposits mature from 2029 to 2031, and it gives up the forward premium it would otherwise earn.
Worked example 5: what the swap is worth
A bank raises a US$100 million, three-year FCNR(B) deposit when the reference rate is ₹95. Assume, for illustration, a market forward premium of 2.5% a year.
- First leg: the bank sells US$100 million to the RBI and gets 100,000,000 × 95 = ₹950 crore.
- Second leg (at par): after three years it buys US$100 million back at ₹95, paying ₹950 crore.
- In the market, the three-year forward would be about 95 × (1.025)³ = 95 × 1.0769 = ₹102.30.
- Saving to the bank = (102.30 − 95) × US$100 million = ₹73 crore, about 7.7% of the principal.
That ₹73 crore is the subsidy the RBI gives up.
Internationalising the rupee
An exchange rate under pressure is one reason India wants more trade invoiced and settled in rupees: less demand for dollars, less exposure to dollar swings.
- 11 July 2022: the RBI allowed exports and imports to be invoiced and settled in INR. Banks can open Special Rupee Vostro Accounts (SRVAs) for correspondent banks of partner countries; Indian importers pay rupees into them and exporters are paid from them. Surplus balances can be invested in government securities and Treasury Bills.
- August 2025: banks can open SRVAs without prior RBI approval.
- 1 October 2025: the Governor announced three steps: banks may lend in INR to non-residents of Bhutan, Nepal and Sri Lanka for cross-border trade; reference rates for the currencies of major trading partners; and SRVA balances may be invested in corporate bonds and commercial paper.
- 5 January 2026: FBIL began publishing the additional reference rates, so banks can quote rupee rates directly against more currencies instead of crossing through the dollar.
By May 2026 SRVAs had been opened by correspondent banks from 35 partner countries. India has local currency settlement arrangements with the UAE, Indonesia, the Maldives and Mauritius. In 2025-26 INR-settled imports grew 41.2%. Internationalisation is a long project: most of India's trade is still invoiced in dollars, and the capital account is only partly open.
The impossible trinity
The impossible trinity (or trilemma), from the Mundell–Fleming model, says a country can have only two of these three at once:
- a fixed exchange rate;
- free capital movement;
- an independent monetary policy.
Hong Kong keeps a fixed rate and open capital, so its interest rates follow the US. China long kept a managed rate and an independent policy by restricting capital flows. The euro area countries gave up independent monetary policy.
India has chosen a middle path: a managed float, a partly open capital account and independent monetary policy aimed at inflation. Intervention, sterilisation, capital flow measures and a big stock of reserves let it soften the trade-offs, but not escape them. 2026 shows the limits. To stop the rupee falling, the RBI sold dollars (draining liquidity), offered swap subsidies (a cost to its balance sheet) and finally raised the repo rate, which also suits its inflation goal with September CPI at 5.54%. Had inflation been low, defending the rupee with rate hikes would have meant choosing the exchange rate over domestic growth.
Common exam traps
Floating vs fixed. India's regime is a managed float: market-determined, with intervention. It is not a peg, and the RBI does not target a level or band. The IMF's de jure label is floating; its de facto label is crawl-like (since the November 2025 report).
Depreciation arithmetic. If the rate goes from ₹85 to ₹90, the dollar has risen 5.9% (90 ÷ 85 − 1) but the rupee has fallen 5.6% (85 ÷ 90 − 1). Do not mix them up.
REER direction. In the RBI's index, higher means a stronger rupee. A REER above 100 means overvaluation relative to the base year, not undervaluation.
Convertibility. The rupee is fully convertible on the current account (August 1994) and partly convertible on the capital account. The Tarapore committees did not lead to full capital account convertibility.
LERMS dates. LERMS began in March 1992, the rate was unified in March 1993, and current account convertibility came in August 1994. The devaluation was in July 1991.
Buy/sell vs sell/buy swaps. A buy/sell swap (RBI buys dollars first) injects rupees. A sell/buy swap (RBI sells dollars first) drains rupees and supports the currency.
FCNR(B) vs NRE. FCNR(B) deposits are in foreign currency, so the bank carries the exchange risk. NRE deposits are in rupees, and the depositor carries it.
Key facts at a glance
| Regime | Managed float; market-determined since March 1993 |
| IMF classification | De jure floating; de facto crawl-like (2025 Article IV, 26 November 2025); stabilised before that |
| RBI's aim | Orderly conditions, curb excessive volatility; no target level or band |
| Basket peg | From 25 September 1975 (before that, sterling) |
| Devaluation | 1 and 3 July 1991, about 18% in dollar terms |
| LERMS | March 1992; dual rate (60% market, 40% official) |
| Current account convertibility | August 1994 (IMF Article VIII) |
| FEMA | 1999, in force from June 2000, replaced FERA 1973 |
| Reference rate | Published by FBIL since 10 July 2018 |
| Record low | ₹96.8441 per US$ (reference rate, 20 May 2026) |
| Rate on 23 October 2026 | ₹94.9432 per US$ |
| Annual average 2025 | ₹87.17 per US$ |
| Record reserves | US$785.7 billion (4 September 2026) |
| REER / NEER 2025-26 | 97.45 / 84.72 (40-currency, base 2015-16 = 100, provisional) |
| FCNR(B) swap 2026 | At par; FCNR(B) window 8 June to 31 August 2026; US$136.4 billion of inflows |
| FCNR(B) swap 2013 | 3.5% a year; 4 September to 30 November 2013; about US$34 billion |
| INR trade settlement | SRVAs from 11 July 2022; 35 partner countries by May 2026 |
Exam corner: what to remember
- Sterling peg → basket peg (25 September 1975) → devaluation (July 1991) → LERMS (March 1992) → unified market rate (March 1993) → current account convertibility (August 1994).
- The RBI manages volatility, not the level. It intervenes in spot, forwards, futures, the offshore NDF market and swaps.
- Selling dollars drains rupee liquidity; buying dollars adds it. Sterilisation reverses the liquidity effect.
- IMF: de jure floating, de facto crawl-like (November 2025), after a spell as stabilised.
- REER rises = rupee appreciates. 2025-26: REER 97.45, NEER 84.72.
- Milestones (reference rate): 80 on 29 August 2022, 85 on 19 December 2024, 88 on 1 September 2025, 90 on 3 December 2025, 95 on 30 April 2026, record 96.84 on 20 May 2026.
- FCNR(B) swaps: 2013 at 3.5% (about US$34 billion); 2026 at par (US$136.4 billion by 31 August).
- October 2026 package: oil-company dollar window (from 12 October), 20% Foreign Exchange Risk Reserve, US$5 million limit without proof of underlying, ban on rebooking.
- Impossible trinity: fixed rate, free capital, independent monetary policy: pick two.
For exam-specific syllabus and pattern details, see our pages for RBI Grade B, SBI PO and IBPS PO.
Test yourself
The Liberalised Exchange Rate Management System (LERMS) was introduced in:
Show answer
Answer: (b) LERMS, a dual exchange rate system, began in March 1992; the rates were unified in March 1993.
India accepted the obligations of Article VIII of the IMF's Articles of Agreement, making the rupee convertible on the current account, in:
Show answer
Answer: (c) Current account convertibility came in August 1994.
In its 2025 Article IV report, the IMF classified India's de facto exchange rate arrangement as:
Show answer
Answer: (b) The de jure regime is floating, but the IMF reclassified the de facto regime from stabilised to crawl-like in November 2025.
When the RBI sells US dollars in the spot market, the immediate effect on the banking system is that:
Show answer
Answer: (b) Banks pay rupees to buy the dollars, so their reserves with the RBI fall.
The USD/INR rate moves from ₹85.62 to ₹89.92. By about how much has the rupee depreciated against the dollar?
Show answer
Answer: (b) 85.62 ÷ 89.92 − 1 = −4.78%; 5.0% is the dollar's appreciation against the rupee.
In the RBI's 40-currency REER index, a rise in the index indicates:
Show answer
Answer: (b) A higher REER means a stronger rupee after adjusting for inflation differences, which can hurt export competitiveness.
Under the FCNR(B) swap facility introduced on 8 June 2026, the second leg of the swap was priced at:
Show answer
Answer: (c) The swap was at par, so the RBI bore the whole hedging cost; the 2013 window charged 3.5% a year.
Under the RBI's October 2026 rules, an importer hedges a US$4 million payment at ₹95 with an eligible forward contract. The Foreign Exchange Risk Reserve the bank must keep with the RBI is:
Show answer
Answer: (b) 4,000,000 × 95 = ₹38 crore, and 20% of ₹38 crore is ₹7.6 crore.
On 10 October 2026 the RBI opened a special window to sell dollars directly to:
Show answer
Answer: (b) The window meets the daily dollar needs of IOC, HPCL and BPCL through designated banks from 12 October 2026.
According to the impossible trinity, a country with free capital movement and a fixed exchange rate must give up:
Show answer
Answer: (c) With open capital and a fixed rate, interest rates must follow the anchor country's, so monetary policy is not independent.
Further reading
- RBI Annual Report 2025-26, Chapter V: Financial Markets and Foreign Exchange Management: the RBI's own account of its forex operations, the NOP-INR limit and every rupee internationalisation step of 2025-26.
- IMF, India: 2025 Article IV Consultation (26 November 2025): the report behind the crawl-like classification, with the IMF's view on exchange rate flexibility.
- RBI, Handbook of Statistics: NEER and REER of the Indian Rupee: the full 40-currency series, trade- and export-weighted, with notes on method.
- RBI, Handbook of Statistics: Exchange rate of the rupee (calendar year averages): the official annual averages against the dollar, pound, euro, yen and SDR.
- RBI circular, International Trade Settlement in Indian Rupees, 11 July 2022: the short, readable text that created Special Rupee Vostro Accounts.
- RBI circular, Swap facility for FCNR(B) deposits, 8 June 2026: the exact terms of the 2026 swap, including the at-par pricing.
- RBI: Crisis and Reforms, 1991 to 2000: the RBI's chronology of the devaluation, LERMS, unification and convertibility.
- Duvvuri Subbarao, Who Moved My Interest Rate? (Penguin, 2016): the Governor during the 2013 taper tantrum explains how the RBI fought the rupee's fall.
Sources
- FBIL reference rates via Frankfurter API: daily USD/INR reference rates from 10 July 2018 to 16 October 2026, used for threshold dates (80 on 29 August 2022, 83.20 peak on 20 October 2022, 85 on 19 December 2024, 88 on 1 September 2025, 90 on 3 December 2025, 92 on 4 March 2026, 95 on 30 April 2026, 96 on 18 May 2026, record 96.8441 on 20 May 2026), year-end values and 2026 monthly averages (accessed 24 October 2026)
- Lawnut, USD to INR official rate today (FBIL): reference rates for 19, 21, 22 and 23 October 2026 (94.9432 on 23 October) (accessed 24 October 2026)
- RBI, Handbook of Statistics, Table 132: Exchange Rate of the Indian Rupee (calendar year averages): annual average USD/INR rates 2010–2025; FEDAI and RBI reference rates; FBIL from 10 July 2018 (accessed 24 October 2026)
- RBI, Handbook of Statistics: Indices of NEER and REER of the Indian Rupee: 40-currency trade-weighted NEER and REER, base 2015-16 = 100, 2010-11 to 2025-26 (accessed 24 October 2026)
- RBI Annual Report 2025-26, Chapter V: intervention in onshore/offshore OTC and exchange-traded segments; objective of curbing excessive volatility; NOP-INR limit of US$100 million by 10 April 2026; SRVAs in 35 countries; LCAs with UAE, Indonesia, Maldives, Mauritius; SRVA approval removed August 2025; INR lending from October 2025; FBIL reference rates from 5 January 2026; INR import settlement up 41.2% (accessed 24 October 2026)
- RBI, Governor's Statement, 1 October 2025: INR lending to non-residents of Bhutan, Nepal and Sri Lanka; reference rates for major trading partners' currencies; SRVA balances in corporate bonds and CP (accessed 24 October 2026)
- RBI, Governor's Statement, 7 October 2026: commitment to "orderly adjustments to the exchange rate"; FPI net outflows of US$10.3 billion in April–5 October 2026; reserves of US$734.6 billion on 2 October; NRI deposit inflows of US$119.2 billion in April–August 2026 (accessed 24 October 2026)
- RBI press release, 10 October 2026: special window to sell dollars to IOC, HPCL and BPCL through designated banks from 12 October 2026 (accessed 24 October 2026)
- Angel One, 10 October 2026: A.P. (DIR Series) Circulars 25 and 26; rebooking ban; US$5 million thresholds; 20% Foreign Exchange Risk Reserve on contracts above US$2 million (accessed 24 October 2026)
- Business Today, 8 October 2026: rupee near record low; spot sales and sell/buy swaps; about US$30 billion of FPI equity sales in 2026 (accessed 24 October 2026)
- RBI circular, Swap Facility for FCNR(B) Deposits, 8 June 2026: both legs at the FBIL reference rate; 3–5-year deposits; multiples of US$1 million; window terms (accessed 24 October 2026)
- RBI press release, 20 July 2026: facility announced 5 June 2026, operational 8 June; US$20.7 billion by 17 July (accessed 24 October 2026)
- RBI press release, 2 September 2026: US$136,377 million of provisional inflows to 31 August, FCNR(B) US$127,226 million; FCNR(B) window closed 31 August; ECB/OFCB to 31 December 2026 (accessed 24 October 2026)
- RBI FAQ, Swap facility for FCNR(B) deposits, ECBs and OFCBs: swap covers principal only; ECB average maturity condition (accessed 24 October 2026)
- Business Standard, June 2026: FCNR(B) net inflows of US$7.08 billion in 2024-25 and US$946 million in 2025-26 (accessed 24 October 2026)
- RBI Weekly Statistical Supplement, 23 October 2026: reserves of US$721.0 billion on 16 October 2026 (accessed 24 October 2026)
- RBI Weekly Statistical Supplement, 11 September 2026: record reserves of US$785.7 billion on 4 September 2026 (accessed 24 October 2026)
- RBI, Governor's Statement, 5 December 2025: US$5 billion three-year buy/sell swap to inject liquidity (accessed 24 October 2026)
- News On AIR, 24 December 2025: US$10 billion buy/sell swap on 13 January 2026 (accessed 24 October 2026)
- Drishti IAS, 28 November 2025: IMF reclassification to crawl-like; definition of crawl-like (accessed 24 October 2026)
- Basis Point Insight, 26 November 2025: stabilised label in 2023, authorities' disagreement, IMF statement that the classification does not imply views on future policy (accessed 24 October 2026)
- SuperKalam, 27 November 2025: stabilised from December 2022; 2% band around a trend for six months (accessed 24 October 2026)
- Business Standard, 5 December 2025: Deputy Governor Poonam Gupta on the crawl-like label and India's managed float (accessed 24 October 2026)
- IMF, India country page: latest Article IV report dated 26 November 2025; no 2026 report listed (accessed 24 October 2026)
- Business Today, 3 December 2025: rupee crosses 90 for the first time (accessed 24 October 2026)
- Outlook Money, March 2026: record low of 92.37 on 12 March 2026 amid the war and oil prices (accessed 24 October 2026)
- FX Leaders, 18 May 2026: record lows in May 2026 with Brent near US$111 (accessed 24 October 2026)
- RBI circular, International Trade Settlement in INR, 11 July 2022: INR invoicing and settlement; Special Rupee Vostro Accounts; investment of surplus balances (accessed 24 October 2026)
- RBI: Crisis and Reforms, 1991 to 2000: devaluation of 1 and 3 July 1991 (about 18%); LERMS March 1992; unified rate 1993; current account convertibility and Article VIII in August 1994; FEMA (accessed 24 October 2026)
- RBI: Brief chronology 1968 to 1985: rupee linked to a basket of currencies on 25 September 1975; 36.5% devaluation in June 1966 (accessed 24 October 2026)
- Wikipedia, Indian rupee: sterling peg after the Smithsonian Agreement of 1971; basket peg from September 1975 (accessed 24 October 2026)
- Business Standard, 7 September 2013: 2013 FCNR(B) swap window terms (accessed 24 October 2026)
- Business Standard, 2013: oil companies' dollar window: August 2013 window for IOC, HPCL and BPCL (accessed 24 October 2026)
- Outlook Business, 2026: 2013 swap windows for FCNR(B) and banks' overseas borrowing raised about US$34 billion; 3.5% rate; 4 September to 30 November 2013 (accessed 24 October 2026)
- Business Standard, 2014: rupee crisis a year on: record low of 68.85 on 28 August 2013; Rajan took charge on 4 September 2013 (accessed 24 October 2026)
- RBI press release, 13 April 2016: 2013 FCNR(B) swaps maturing from September 2016, covered by forward purchases (accessed 24 October 2026)