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 intensified efforts follow a rise in energy costs caused by 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. To deter heavy selling, officials introduced a mechanism requiring authorised dealers to maintain a 20 per cent cash reserve for forward contracts with the RBI. The RBI also slashed the limit on derivative transactions users can undertake without proof of underlying exposure from $100mn to $5mn.
The currency closed on Friday slightly above its record low of Rs96.97 per dollar, despite the RBI raising interest rates on Wednesday for the first time in three years and selling dollars to stem the slide. Madhavi Arora, chief economist at Emkay Global in Mumbai, said the moves "tighten speculative positioning and give direct support to the rupee," adding that she expects gains of about 1 per cent on Monday.
Earlier this year, the RBI introduced temporary measures to make it harder for investors to short the rupee. The central bank has also raised $143.6bn from the Indian diaspora through schemes to attract dollars back into the country and ease pressure on the currency.
Source: Financial Times Markets · Summarized by HeadlinesBriefing