RBI’s oil forex window set to fuel rupee recovery

Mumbai: The Reserve Bank of India has opened an exclusive foreign exchange window for supplying dollars to state-run refiners, easing pressure on the spot exchange rate, currency analysts, bankers and traders told ET. It’s likely routed through state-run lenders such as the State Bank of India, they said.

The central bank has used this strategy previously to ease pressure on the rupee--during the socalled taper tantrum of 2013, the Russian-Ukraine war and on occasions when demand from oil companies added to pressure on the currency.

“On an average, daily dollar demand from oil companies is around $500-550 million,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

Also read: RBI asks state oil refiners to curb spot dollar buying, sources say


“Today (Friday) and even yesterday we saw this demand decrease. Going ahead, I expect the demand to decrease by as much as 90%. As the demand decreases, we can see the rupee appreciate till around 92 per dollar levels.”

The rupee has been among the worst-performing emerging market currencies in the past year as portfolio out flows accelerated and foreign direct investment inflows slowed. Geopolitical tensions added to the impact on the rupee, prompting the central bank to come up with a series of measures to curb the sharp slide, including mandating banks to square off their speculative trades. If dollar demand moderates, the rupee could strengthen toward the 92.00–92.20 per dollar range, traders said.

The currency closed at 92.92 on Friday, compared with 93.20 in the previous session. Persistent dollar demand from oil companies and importers around the 92.50–92.60 levels over the past two weeks had capped further appreciation in the currency, dealers said.

Also read: Rupee ends stronger, trims underperformance versus Asia FX on RBI measures

RBI’s Indirect Intervention

Traders said this could be construed as an indirect intervention, with dollars supplied by the central bank keeping a key player out of the market.

The RBI and SBI did not respond to emailed queries.

“If the RBI is meeting spot dollar demand, it will likely do so using its reserves,” said Sajal Gupta, head of forex and commodities at Nuvama. “If the demand is in the forward market, it would show up as an increase in the RBI’s short forward position. Either way, the demand is effectively being met by the RBI.”

This will relieve pressure on the spot market, he said, adding that Friday’s rupee appreciation was due to this. Few banks other than SBI could extend such a line of credit because of the sheer magnitude of the demand.