Rupee gains on report of RBI nudging oil firms to reduce dollar buys

Central bank's rate hike and easing dollar index lend support to domestic currency

The rupee gained sharply on Friday as the US dollar eased globally and reports said the Reserve Bank of India had nudged public sector oil companies to cut down on dollar purchases in the spot market, dealers said.

The domestic currency settled at 81.35 per dollar as against 81.85 at previous close. In this calendar year, the rupee has depreciated 8.6 per cent versus the dollar.

Rupee’s depreciation has been aggravated since September 21 which was when the Federal Reserve signaled a longer-than-expected US rate hike cycle. The Indian currency has shed 1.7 per cent since then.

The Reserve Bank of India’s decision on Friday to opt for a 50-basis-point rate hike helped the rupee, with dealers saying that the central bank’s repeated commentary on the external situation suggested that it would closely watch the currency.

Higher domestic interest rates increase the appeal of local assets and widen the rate differential with the US.

Reuters, quoting sources, reported on Friday that the RBI has ensured $9 billion is available at overseas branches of some Indian banks for the country's three state-run refiners to use instead of resorting to dollar purchases in the spot market.

The credit line is available only for Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp, Reuters reported.

“Rupee strengthened after it was reported that RBI was encouraging state-run Refinery to reduce dollar buying in the spot market and rather lean on a special credit line. This made USDINR move towards 81.16 levels and later bounced back for a close of 81.34,” said Shinhan Bank’s vice-president (Global Trading Centre) Kunal Sodhani.

“DXY (dollar index) did cool off sharply from highs of around 114.80 to 111.60 levels but could find some support and bounce back again. Overall, broader range for USDINR continues to be 80.60-82.00,” he said.