India’s central bank announced a dollar facility for three state oil companies from 12 October. Their daily needs are to be supplied through designated banks, shifting purchases away from the spot market. The intervention accompanies tighter rules for currency derivatives, as importers and companies seek protection against a rupee that has lost more than 7 percent this year.
The Reserve Bank of India, the country’s central bank, announced a special facility for the daily dollar requirements of Indian Oil, Hindustan Petroleum and Bharat Petroleum, three public-sector oil companies. The bank says sales through designated banks begin on 12 October and continue until further notice. Their purchases are directed away from the spot currency market, where foreign currencies change hands for immediate delivery.[1], [2]
The intervention also includes tighter currency-derivative rules. For contracts buying foreign currency against the rupee to hedge current-account transactions, a 20 percent risk reserve applies when the notional value exceeds 2 million dollars. Bankers quoted by Reuters said the requirement would increase protection costs. The limit for derivative trades without evidence of an underlying exposure was cut from 100 million dollars to 5 million dollars, including exchange-traded futures.[1]
The measures follow increased dollar demand from importers and demand for protection against currency losses. The rupee had depreciated more than 7 percent against the dollar this year. Following the announcements, it strengthened approximately 0.6 percent in the non-deliverable forward market, where Reuters described trading as thin. Oil-company demand is being redirected as the central bank supplies the dollars from its reserves.[1]
