The Reserve Bank of India unveiled new currency-market measures Saturday as the rupee remained near record lows after losing more than 7% against the dollar this year.
The central bank will establish a special mechanism allowing three major state-controlled oil-marketing companies — Indian Oil, Hindustan Petroleum and Bharat Petroleum — to obtain dollars directly from the RBI rather than buying them through the normal spot foreign-exchange market.
The facility begins Monday. Reuters
Removing some oil-company demand from the open market could reduce immediate pressure on the rupee because energy companies are major recurring buyers of dollars.
The RBI also tightened derivatives rules.
Foreign-exchange dealers will be required to maintain a 20% foreign-exchange risk reserve on certain current-account hedges exceeding $2 million.
The central bank also reduced the limit for derivatives transactions conducted without evidence of underlying exposure from $100 million to $5 million across derivative products. Reuters
The measures come despite more than $140 billion of capital inflows generated through previous policy initiatives and a recent RBI interest-rate increase.
That illustrates the scale of the external pressure.
Higher oil prices increase India’s import bill and demand for dollars, while elevated global bond yields can make dollar assets comparatively more attractive and increase pressure on emerging-market currencies.
The new rules may reduce short-term volatility, but they do not eliminate those underlying forces.
Investors will watch the rupee when the dollar facility becomes operational Monday, the RBI’s foreign-exchange reserves, oil prices and whether the central bank needs to escalate intervention.
