Oil firms' dollar window could be narrowed

Wary of rupee volatility, RBI may not make an announcement

As the volatility in the rupee has reduced since end-August, the Reserve Bank of India (RBI) is likely to  ask the government-owned oil marketing companies (OMCs) to meet part of their monthly dollar requirements from the market.

However, say market participants, the central bank would not make a formal announcement on this, to avoid volatility in the rupee, which it has been able to control to a great extent since August.

Earlier this month, RBI clarified that the OMCs’ swap window remains operational and any tapering, when it occurred, would be done in a calibrated manner. RBI had opened this swap window on August 28 for the three OMCs — Indian Oil, Hindustan Petroleum and Bharat Petroleum. On that day, the rupee had touched an all-time low of  68.85 to a dollar during intra-day trade.

“The market buzz is that OMCs might have been asked by RBI to cover 15-20 per cent of their monthly dollar requirements from the market. This is also in line with RBI's statement of the swap window being withdrawn in a calibrated manner,” said Partha Bhattacharya, deputy chief executive officer, Mecklai Financial.

The rupee closed at 61.47 to a dollar on Thursday, compared with Wednesday’s close of 61.59. Since the start of this month, the rupee has strengthened by 1.8 per cent; since August 28, by 10.7 per cent.

A Prasanna, chief economist, ICICI Securities Primary Dealership, said, “I do not expect a one-shot announcement from RBI that from today onwards, OMCs will meet their requirements from the market. Initially, RBI might ask these OMCs to meet a part of their dollar requirements from the market and as and when things stabilise, RBI might announce that they were already part of their requirement this way and, henceforth, would meet all the requirements. I am not sure about the  timing. RBI might also choose not to tell the market about it, since the announcement could have some impact.” RBI will detail the second quarter monetary policy review on the coming Tuesday.

Some experts said the likelihood of a further cut in the Marginal Standing Facility (MSF) rate is low and bringing back the OMCs’ demand into the system is more likely. According to Pradeep Madhav, managing director, STCI Primary Dealer, the rupee might have stabilised but the reason is due to taking the OMCs’ demand out of the system. Hence, the first step could be to bring back the OMCs’ demand and then see if the rupee is still stable, before cutting the MSF rate further. It is currently at nine per cent.