RBI opens window for forex purchase by oil firms

Central bank's move will help reduce dollar demand pressure

As part of its steps to stabilise the rupee, the Reserve Bank of India has decided to open a foreign exchange swap window to meet the daily dollar requirements of the three public sector oil marketing companies (OMCs).

These three OMCs are the biggest buyers of dollars, requiring $8-8.5 billion every month, for the import of an average of 7.5 million tonnes of crude oil.

Under the facility, RBI will undertake to sell/buy the dollar-rupee forex swaps for a fixed tenure with the companies — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — through a designated bank, went a late evening statement from the central bank. The facility is with immediate effect and is to remain in place until further notice, it said.

Treasury executives and forex dealers said the move would reduce immediate demand pressures for dollar, reduce volatility in the currency market and help restrict the sharp slide in the rupee against the dollar.

EASING THE RUPEE

• RBI will open a forex swap window to meet the daily dollar requirements of three OMCs, the biggest buyers of dollars
• These OMCs require $8-8.5 bn every month, for the import of an average of 7.5 million tonne of crude oil
• RBI will undertake to sell/buy the dollar-rupee forex swaps for a fixed tenure with the companies, through a designated bank
• But OMCs will have to return the dollars they source from RBI at a later date

According to analysts, consistent dollar demand from banks and importers, mainly oil refiners, following higher crude oil prices, kept the rupee under pressure.

However, there is a catch in the arrangement. The OMCs would have to return the dollars they would source from RBI at a later date. The assumption is that dollar flows will improve, helping the OMCs to buy the US currency and return the money to RBI.

A senior State Bank of India official said the RBI step would limit the demand for raising dollars from the market and should take off pressure, since demand from the OMCs has been substantial.

Madan Sabanavis, chief economist, CARE Ratings, said this was a fire-fighting measure on the part of RBI. “It will partly address the panic driving the fall in the rupee value in the last few days,” he said.

S Srinivasaraghavan, head of treasury, Dhanlaxmi Bank, said this was a sentiment-boosting measure and would help the rupee when the market opened on Thursday.

India’s oil import in July was valued at $12.7 billion, about eight per cent lower than the $13.8 bn in the corresponding period a year before. During April-July, oil imports were valued at $54.6 bn, which was 2.65 per cent higher than the $53.2 bn in the corresponding period last year.