Banks expect near-term rupee relief from RBI's new currency measures

Kotak Mahindra Bank and IDFC FIRST Bank expect temporary relief for the rupee following foreign exchange restrictions announced by the Reserve Bank of India on October 10.

Bank research cited by PTI suggests the measures could curb dollar demand from hedging and reduce forward premiums. Kotak said a move below 95 rupees per dollar was possible. That is a forecast, rather than an observed exchange-rate change.

Currency protection could become more expensive for importers. Kotak estimates additional hedging costs of 1–1.6%, while IDFC FIRST Bank puts the increase at about 1.5%. The latter identifies expensive crude oil, portfolio outflows and weak capital flows as potential sources of continued pressure on the rupee.

The RBI barred the rebooking of cancelled rupee-linked foreign exchange derivative contracts and reduced the threshold for transactions without establishing underlying exposure from $100 million to $5 million. Rollovers at maturity remain allowed under existing rules.

For specified contracts exceeding $2 million that hedge current-account transactions involving purchases of foreign currency against rupees, banks must maintain a cash reserve equal to 20% of the rupee equivalent of the notional value. The requirement does not cover every currency purchase.

IDFC FIRST Bank forecasts a decline in core liquidity surplus from 10.4 trillion rupees on October 2 to around 2 trillion by March 2027. Kotak estimates that the measures could withdraw about 1.5 trillion rupees of durable liquidity over a month. Actual outcomes will depend on external conditions and central bank operations.