FinMin discusses ways to control rupee volatility with oil cos

With rupee breaching the 60 per dollar mark, Finance Ministry today discussed measures to control volatility and high fluctuations in the exchange rate with oil companies, who require large volumes of dollars for import of oil.

Finance heads of oil companies met senior officials in the Finance Ministry and discussed measures that could help arrest the free fall of the rupee.

A finance ministry source said the meeting was called to 'understand how their dollar demand works.'

'In the sense how do they do purchase, how do they get dollars, why is it that there is a spike in their demand on different days,' he said.

Last year, the Reserve Bank of India (RBI) had instructed state-run oil companies to change their dollar purchase process to buy more of the US currency from a single public sector bank and reduce the amount they source through competitive quotes from multiple banks.

Refiners Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp are the biggest buyers of dollars in the domestic market with nearly $7 billion of monthly purchase.

But the measure was never implemented and oil firms continue to buy dollars by seeking competitive quotes from multiple public, private and foreign institutions, something which adds to volatility in the market.

Large purchase of dollars by these firms are adding to the woes of the Indian currency which plummeted to an unprecedented 60.7650 to a US dollar on June 26 and has become one of the worst performing Asian currencies. Rupee lost around 5% each in May and June. It closed today at 60.13 against the dollar.

The source said oil companies explained to the finance ministry what they are broadly doing. No instruction on dollar purchase was immediately issued, he added.