Mumbai: With the rupee continuing to be under pressure, the Reserve Bank on Saturday stepped in with moves aimed at bolstering the currency, including creating a special window for oil marketing companies which will take the dollar demand away from the spot market.
In a slew of notifications early morning on a weekend, the RBI also tightened rules governing forex derivatives trades, aiming to curtail speculative bets against the rupee and asked banks to create a 20 per cent reserve for dollar purchases of over USD 2 million.
The rupee gained 17 paise against the dollar on Friday to close at 96.71 against the dollar, but has been hovering very close to its lifetime low of 96.96 seen in May this year. The forex kitty has declined over USD 50 billion over the last few weeks and stood at USD 734 billion as on October 2.
The special window for three state-run OMCs, who are one of the biggest consumers for the dollar given their crude import bill requirements, has been undertaken on the basis of assessment of “current market conditions”, the central bank said.
“Under the facility, the Reserve Bank will undertake sale of USD to the public sector OMCs through designated bank/s,” it said, adding that the facility for Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation will come in effect from October 12.
During the ‘taper tantrum’ episode of 2013, the RBI had initiated measures to keep the OMCs’ demand out of the forex market to stave-off the pressure on the rupee, which was on a depreciation spree then.
Over the last few months, the central bank has acted with a slew of measures to arrest the fall, including creating a concessional swap window through which banks have mobilised nearly USD 133 billion in diaspora deposits. However, after some stabilising, the currency has continued to be under pressure.
Experts said factors, including foreign investor, outflows due to lack of artificial intelligence themed stocks in Indian markets, hardening of rates in overseas markets, which offers relatively strong and risk-free returns, and also tightening by other central banks has led to the pressures on the rupee.
On Wednesday, Governor Sanjay Malhotra had assured that the RBI will help stabilise the rupee, which he said was undervalued, and help the currency find its correct value.
In another set of measures announced on Saturday on the derivatives front, the RBI said authorised dealers (AD) should not permit users to rebook any foreign exchange derivative contract involving the INR, whether deliverable or non-deliverable, which has been cancelled.
An AD may continue to permit users to rollover foreign exchange derivative contracts on maturity, it clarified.
The threshold for taking positions without requirement to establish the existence of underlying has been reduced to USD 5 million from USD 100 million, the RBI said in a notification addressed to ADs.
Additionally, the RBI has also asked ADs to maintain a Foreign Exchange Risk Reserve (FERR) for foreign exchange derivative contracts involving INR, which will be equal to 20 per cent of the INR equivalent of the notional amount of each derivative contract.
The FERR shall be deposited and maintained by way of cash in India with the Reserve Bank on a daily basis and shall be maintained until the termination of the contract, it said.
The reserve will be applicable to all foreign exchange derivative contracts involving INR of notional value exceeding USD 2 million equivalent undertaken for the purpose of hedging current account transactions where the user is purchasing foreign currency against INR, it said.
ADs have also been asked to report the details of the FERR maintained on a daily basis through Centralised Information Management System (CIMS) of the Reserve Bank, the notification said, warning stakeholders not to circumvent the rules.
