India to provide oil companies with dollars from reserves — The Express Tribune
In India, the Reserve Bank will open a special window to meet the daily dollar needs of three state-owned oil companies. This is intended to remove their demand for the US currency from the spot market and support the Indian rupee, which remains near record lows.
As The Express Tribune reports, Indian Oil, Hindustan Petroleum and Bharat Petroleum will gain access to the mechanism from Monday. Under this scheme, the central bank directly provides the companies with dollars from its foreign exchange reserves. This instrument is used during periods of pressure on the national currency.
Pressure on the rupee
Since the beginning of the year, the rupee has lost more than 7% of its value due to rising oil prices and global bond yields. After the new measures were announced, the currency strengthened by around 0.6% against the dollar in the non-deliverable forwards market, although trading there was limited.
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ANZ Bank currency strategist in Mumbai Dhiraj Nim said that supplying oil companies with dollars would remove one of the largest sources of demand from the foreign exchange market. At the same time, in his assessment, this will lead to a reduction in the central bank's foreign exchange reserves.
New hedging rules
The Reserve Bank of India has also tightened requirements for foreign exchange derivatives transactions. Foreign exchange dealers must maintain a 20% currency-risk reserve for derivative contracts to purchase foreign currency with rupees to hedge current account transactions if the nominal value of the transactions exceeds $2 million.
In addition, the regulator lowered from $100 million to $5 million the limit for derivative transactions that can be conducted without confirmation of the underlying exposure. The restriction applies to all types of derivatives, including exchange-traded futures.
