With rupee touching all-time low of Rs 57.30 to a US dollar, the Reserve Bank of India (RBI) has directed state-owned oil companies to buy half of their dollar requirement for oil imports from a single public sector bank.
“Importers are clearly rushing to cover and exporters are simply holding back. There is no supply in the market. If you analyse the quantum of exports and imports month-wise, there is no spike. In fact, imports have only gone down sharply. So, the rupee movement and the behaviour of the exporters or importers should be seen in that context. Today’s decision by RBI on oil imports should be seen as a sentiment booster. They should have stepped in earlier,” JSW Steel Joint MD & Group CFO Seshagiri Rao said.
Mild interventions from RBI were unable to stop the rupee from falling to its life-time low of 57.33 against the dollar on Friday, before pulling back marginally to close at 57.16 — a fall of 1.5 per cent over the previous close. This is the biggest intra-day fall the rupee has seen since December 2011. Over the week, the rupee fell by three per cent — the highest weekly loss since September 2011.
“The trend may reverse only if the crude oil prices sustain at the current level and there is no further noise from rating agencies. However, macro currency markets will also look at the resolution of some macro challenges, like fiscal deficit, current account deficit, inflation and growth, for a more sustained upmove in the currency,” said Standard Chartered Bank Chief Economist and Head of Research Samiran Chakraborty.
Between September 2011 and April, RBI sold $20.4 billion in the spot market to arrest the fall in the value of the rupee. Despite this, along with administrative measures, the currency declined 25 per cent against the greenback during the period. RBI has been cautious on using its foreign exchange reserves, which have declined by $3.5 billion since the start of September. According to RBI Governor D Subbarao, the present level of reserves could support eight months of imports.
RBI feels that oil firms seeking a single quote for their dollar requirement, instead of the present practice of floating enquiring with several pubilc and private sector banks, would help check volatility and arrest the free-fall of the rupee.
The three big state oil firms need about $8 billion every month for import of crude oil and some petroleum products like LPG. Private sector Reliance Industries and Essar Oil, who between them import over 40 per cent of crude oil shipped to India annually, will continue to buy dollars as per their company policies.
State Bank of India Chairman Pratip Chaudhuri said the arrangement of oil companies buying half of their dollar requirement from single public sector bank will not change satiation in market. It does not increase overall supply of forex in the market.
Bank did not hold large reserves, it bought from market and makes it available to clients (company or entity), he said.