India’s central bank announced additional measures on Saturday to support the rupee after the currency weakened to near its record low against the US dollar, increasing pressure on policymakers to stabilise the foreign exchange market.
The Reserve Bank of India (RBI) said it would establish a special facility to meet the daily dollar requirements of three state-owned oil marketing companies. The arrangement is intended to ease demand for dollars in the spot market, where companies and other buyers exchange currencies.
Under the facility, the RBI will supply dollars directly from its foreign exchange reserves to Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. The three companies will be able to access the facility from Monday, the central bank said.
Oil importers are significant buyers of dollars because international crude purchases are generally priced in the US currency. Providing dollars directly to major state-owned refiners could reduce their need to purchase foreign currency in the open market and help ease pressure on the rupee.
The RBI also announced tighter restrictions on currency derivatives trading as part of its latest effort to contain volatility and manage speculative positions.
Forex dealers will no longer be permitted to allow customers to rebook foreign exchange derivative contracts, according to the central bank.
The RBI also reduced the limit on positions in exchange-traded currency derivatives involving the rupee to $5 million from $100 million. In addition, it directed foreign exchange dealers to maintain a “foreign exchange risk reserve” equivalent to 20% of the notional amount of every derivative contract involving the rupee.
The measures follow previous efforts by the central bank to support the currency, including dollar sales and an increase in its policy interest rate. However, the rupee has continued to face pressure amid demand for foreign currency and wider market uncertainties.
The rupee closed at 96.73 against the US dollar on Friday, little changed from its previous close but remaining close to its weakest level on record. The currency reached an all-time low of 96.96 per dollar in May.
The latest steps highlight the RBI’s efforts to reduce immediate pressure on the foreign exchange market while limiting risks arising from currency derivatives trading.
The special dollar facility is expected to address part of the demand generated by state-owned oil companies, while the tighter derivatives rules aim to curb the buildup of large positions in rupee-linked contracts.
The effectiveness of the measures will depend on broader market conditions and whether demand for dollars continues to outpace supply. The rupee’s movement in the coming sessions will be closely watched for signs of whether the RBI’s latest intervention can ease the pressure on the currency.
