RBI opens special dollar window to ease rupee pressure

The Reserve Bank of India (RBI) on Saturday announced fresh measures to support the rupee after the currency fell close to its record low against the US dollar.The central bank will open a special window from Monday to meet the daily dollar requirements of three state-run oil marketing companies (OMCs) — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — to ease pressure on the foreign exchange market, according to agency reports.
Under the arrangement, the RBI will directly provide dollars from its foreign exchange reserves to the oil companies, reducing their demand for dollars in the spot market.
The RBI also tightened rules governing foreign exchange derivatives. It barred forex dealers from allowing customers to rebook cancelled foreign exchange derivative contracts and cut the position limit for exchange-traded rupee derivatives to $5 million from $100 million.Additionally, the central bank directed forex dealers to maintain a “foreign exchange risk reserve” equivalent to 20% of the notional amount of each derivative contract involving the rupee.
The measures come as the domestic currency remains under pressure despite the RBI's interventions in the foreign exchange market and an increase in its policy rate.On Friday, the rupee closed at 96.73 against the US dollar, remaining close to its record low of 96.96, reached in May.
Meanwhile, the rupee strengthened in the non-deliverable forward market on Saturday, with the one-month dollar-rupee contract falling by around 40 paise in thin trading, according to a trader.Dhiraj Nim, FX strategist at ANZ Bank in Mumbai, said meeting oil companies' dollar requirements directly would remove one of the largest sources of demand from the foreign exchange market and could help reduce volatility. However, he noted that the move would also lead to a drawdown in foreign exchange reserves.

(Business Correspondent)