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India’s central bank on Saturday unveiled fresh measures to shore up the rupee including moving oil companies’ dollar purchases away from the spot market as one of Asia’s worst-performing currencies nears record lows.
The surprise moves by the Reserve Bank of India included opening a special window “to meet the entire daily dollar requirements” of state oil companies Indian Oil, Hindustan Petroleum and Bharat Petroleum, the bank said in a statement.
The RBI’s intensification of its efforts to prop up the currency came after a rise in energy costs due to the US-Israel war on Iran, which has put pressure on the rupee.
India relies on imports for more than 90 per cent of its crude oil and the world’s fastest-growing major economy is on track for its third straight annual balance of payments deficit.
In an attempt to deter heavy selling of the rupee, officials also introduced a new mechanism requiring authorised dealers to maintain a 20 per cent cash reserve requirement for forward contracts with the RBI. China has previously used similar tools.
The RBI slashed the limit on the size of derivative transactions users can undertake without proof of underlying exposure from $100mn to $5mn.
The measures “are intended to strengthen market discipline and ensure appropriate risk management in the foreign exchange market”, the bank said.
India’s currency closed on Friday slightly above its record low of Rs96.97 per dollar. The drop came despite the RBI raising interest rates on Wednesday for the first time in three years and selling dollars to stem the slide.
“These moves tighten speculative positioning and give direct support to the rupee,” said Madhavi Arora, chief economist at financial services group Emkay Global in Mumbai. “Expect [on] Monday to see gains in the rupee of about 1 per cent.”
Earlier this year the RBI introduced temporary measures to make it harder for investors to short the rupee. The central bank also previously raised $143.6bn from the Indian diaspora through schemes to attract dollars back into the country and ease pressure on the currency.
