The Reserve Bank of India (RBI) clarified on Friday that its emergency facility under which it has directly sold dollars to state refiners since late August remains open.
“The oil marketing companies (OMC) swap window remains operational. Any tapering of the window, as and when it occurs, will be done in a calibrated manner,” said the central bank in a press release.
The clarification came after reports suggested that the RBI may close the window, which in turn led to a sudden fall in the rupee.
The rupee, which had opened strong on the back of global dollar weakness, fell close to 1% in intra-day trade, hitting a low of 61.71/$.
The currency, however, recovered after the RBI's clarification and closed 0.1% lower at 61.2650/$.
“We have not heard anything regarding the closing of the window. The RBI may only consider closing it after flows come back strongly,” said NS Venkatesh, head, treasury, IDBI Bank.
“Some sort of staggering is possible while bringing back the oil dollar demand to the market,” he added.
The special dollar window for OMCs was announced on August 28, when the rupee slumped to a record low of 68.845 against the dollar, to temper excess demand for foreign exchange in the domestic market. The local currency has rebounded more than 12% since.
India’s three biggest state refiners bought about $300 million a day from the local spot market to pay for oil imports before the RBI move, Standard Chartered said in August.
“The RBI could be trying to signal that some sort of normalcy has been restored to the market,” said Vishnu Varathan, a senior economist at Mizuho Bank in Singapore.
“The markets will now be a bit cautious on the rupee and investors will be less inclined to buy the currency,” he said.
RBI governor Raghuram Rajan has said the bank will gradually scale back the dollar supplies as the rupee stabilises.
While some believe the current trading levels of the rupee are not sustainable since a large chunk of dollar demand remains out of the market, others feel that flows have picked up sufficiently to sustain current levels.
“Flows are coming in from exporters and foreign institutional investors along with money coming in through
the FCNR window,” said Venkatesh of IDBI Bank, adding that he expects the rupee to remain stable in the near term.
Bonds gain on RBI assurance
Government bonds rose for a second consecutive session on Friday after the central bank said the dollar window for oil companies would remain open, although debt markets posted their first weekly fall in three on fears of rising inflation. The benchmark 10-year government bond yield ended down 5 basis points on the day at 8.55%. The yield fell 6 bps for the week, snapping two weeks of advances. Absence of a weekly auction next week and the upcoming policy review on October 29 will keep bonds in a thin range next week, dealers said, adding that the rupee would be watched closely for direction. The one-year overnight indexed swap rate ended down 5 basis points at 8.41%. Reuters
“The oil marketing companies (OMC) swap window remains operational. Any tapering of the window, as and when it occurs, will be done in a calibrated manner,” said the central bank in a press release.
The clarification came after reports suggested that the RBI may close the window, which in turn led to a sudden fall in the rupee.
The rupee, which had opened strong on the back of global dollar weakness, fell close to 1% in intra-day trade, hitting a low of 61.71/$.
The currency, however, recovered after the RBI's clarification and closed 0.1% lower at 61.2650/$.
“We have not heard anything regarding the closing of the window. The RBI may only consider closing it after flows come back strongly,” said NS Venkatesh, head, treasury, IDBI Bank.
“Some sort of staggering is possible while bringing back the oil dollar demand to the market,” he added.
The special dollar window for OMCs was announced on August 28, when the rupee slumped to a record low of 68.845 against the dollar, to temper excess demand for foreign exchange in the domestic market. The local currency has rebounded more than 12% since.
India’s three biggest state refiners bought about $300 million a day from the local spot market to pay for oil imports before the RBI move, Standard Chartered said in August.
“The RBI could be trying to signal that some sort of normalcy has been restored to the market,” said Vishnu Varathan, a senior economist at Mizuho Bank in Singapore.
“The markets will now be a bit cautious on the rupee and investors will be less inclined to buy the currency,” he said.
RBI governor Raghuram Rajan has said the bank will gradually scale back the dollar supplies as the rupee stabilises.
While some believe the current trading levels of the rupee are not sustainable since a large chunk of dollar demand remains out of the market, others feel that flows have picked up sufficiently to sustain current levels.
“Flows are coming in from exporters and foreign institutional investors along with money coming in through
the FCNR window,” said Venkatesh of IDBI Bank, adding that he expects the rupee to remain stable in the near term.
Bonds gain on RBI assurance
Government bonds rose for a second consecutive session on Friday after the central bank said the dollar window for oil companies would remain open, although debt markets posted their first weekly fall in three on fears of rising inflation. The benchmark 10-year government bond yield ended down 5 basis points on the day at 8.55%. The yield fell 6 bps for the week, snapping two weeks of advances. Absence of a weekly auction next week and the upcoming policy review on October 29 will keep bonds in a thin range next week, dealers said, adding that the rupee would be watched closely for direction. The one-year overnight indexed swap rate ended down 5 basis points at 8.41%. Reuters
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