Clarification on OMC swap window aids rupee gain

Since beginning of FY14, rupee has weakened about 13%

The Reserve Bank of India (RBI)’s clarification that the swap window for oil marketing companies (OMCs) remained operational helped the rupee recover on Friday. However, it closed five paise weaker against the dollar, compared to the previous close.

RBI clarified any tapering of the swap window, as and when it happened, would be done in a calibrated manner.

In intra-day trade, the rupee saw volatility; it moved in a band of 78 paise, amid speculation RBI might withdraw the swap window for OMCs.

The rupee ended at 61.27/dollar, compared with the previous close of 61.22/dollar. It had opened at 61.19/dollar and, during intra-day trade, touched a high of 60.93/dollar, a level last seen on August 8. On Friday, the rupee’s intra-day low was 61.71/dollar.

“The weakness in the rupee was due to speculation RBI might withdraw the OMC swap window. For the rupee, the trading range for next week may be 60.8-62.5/dollar,” said Abhishek Goenka, founder and chief executive, India Forex Advisors.

Since the beginning of this financial year, the rupee has weakened about 13 per cent. Compared to the beginning of October 2013, it has appreciated 2.16 per cent.

“The rupee ended weak because even now, there is confusion in the Street about when RBI might actually withdraw the OMC swap window. Earlier, the central bank had said it would keep the window open till November 30. Now, it says it would be tapered in a calibrated manner, which means it could be withdrawn even before November 30,” said a currency dealer with a private sector bank.

RBI had opened the swap window on August 28 for the three public sector OMCs —  Indian Oil Corporation, Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd. On that day, the rupee had touched an all-time low of 68.85/dollar in intra-day trade. The move helped the rupee. On August 29, the currency closed at 66.6/dollar. Since August 28, the rupee has recovered about 11 per cent so far.

RBI’s clarification also led to government bond yields falling. The yield on the 10-year, 7.16 per cent benchmark government bond ended at 8.6 per cent, against the previous close of 8.66 per cent.