2 hrs ago
RBI Opens Dollar Window for Oil Firms, Tightens Forex Rules
The Reserve Bank of India is setting up a special way for three state-run oil companies to get the dollars they need each day.
The companies use dollars to pay for oil bought from other countries.
The facility starts on October 12 and will stay in place until the RBI says otherwise.
The RBI will provide the dollars through designated banks.
The move comes while the rupee is under pressure against the dollar.
The RBI has also tightened rules for some currency contracts, including restricting the rebooking of certain cancelled contracts.
It lowered the amount that can be hedged without showing the underlying exposure, and dealers must keep cash reserves for some contracts.
These steps could ease immediate demand for dollars, but supplying dollars could also draw down foreign exchange reserves.
The RBI did not disclose the facility's pricing or expected dollar supply.
From October 12, the RBI will meet the daily dollar needs of Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation through a special facility.
The facility will operate until further notice, with the RBI selling dollars to the companies through designated banks.
The measures come as the rupee closed at 96.73 per dollar on Friday, compared with 96.79 in the previous session.
The RBI barred rebooking certain cancelled rupee-linked derivatives and lowered the threshold for hedging contracted exposures without proving the underlying exposure from $100 million to $5 million.
Dealers must hold a cash reserve equal to 20% of the rupee value of eligible contracts above $2 million; the RBI also requires confirmation that exposures are not hedged elsewhere.
- Who
- The Reserve Bank of India and three public-sector oil companies: Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.
- What
- The RBI announced a special dollar-supply facility for the companies and tighter rules for foreign exchange derivatives.
- Where
- India.
- When
- Announced Saturday, October 10; the facility begins October 12 and continues until further notice.
- Why
- The facility is intended to meet the oil companies' daily dollar needs amid pressure on the rupee; the RBI said the derivative rules aim to strengthen market discipline and support orderly market functioning.
Potential benefits
Risks and limits
Dollar facility and rupee pressure
Potential benefits
Meeting the oil companies' dollar needs outside their usual spot-market demand could ease immediate pressure and volatility in the rupee.
Risks and limits
Supplying dollars may draw down foreign exchange reserves, and the effect on the rupee depends on wider factors such as oil prices, investment flows and global dollar movements.
Tighter derivatives rules
Potential benefits
Restrictions on rebooking, lower exposure thresholds and documentation requirements are intended to curb speculative or duplicate positions and strengthen market discipline.
Risks and limits
The articles do not quantify the measures' effects; they note that broader market conditions will also shape whether currency stability improves.
Key facts
- Facility start
- October 12
- Companies covered
- Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation
- Facility duration
- Until further notice
- Rupee exchange rate
- Closed at 96.73 per dollar on Friday, versus 96.79 in the previous session
- Exposure threshold
- Reduced from $100 million to $5 million for specified derivatives without establishing the underlying exposure
- Foreign exchange risk reserve
- Cash reserve equal to 20% of the rupee equivalent of eligible contracts' notional value
- Reserve eligibility
- Specified rupee-linked contracts exceeding $2 million that hedge current-account exposures where users buy foreign currency against rupees
- Foreign exchange reserves
- Reported at $734.60 billion for the week ended October 2, down $12.95 billion that week and around $51 billion below the September record cited in the article
Quotes
Reserve Bank of India
India’s central bank, which announced the dollar facility.
“Under the facility, the Reserve Bank will undertake sale of USD to the public sector OMCs through designated bank/s.”
financialexpress.com
Sources
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