India central bank takes steps to support rupee, opens dollar window for oil companies

According to Business Recorder, India's central bank has unveiled more steps to prop up the rupee after the currency slid close to its all-time low. A special facility will be made available from Monday so that Indian Oil, Hindustan Petroleum and Bharat Petroleum can obtain the dollars they need each day. Through this route, the RBI hands dollars straight from its reserves to the oil firms when the currency faces pressure.

The central bank has also reduced the limit on positions in exchange-traded rupee currency derivatives from $100 million to $5 million. Forex dealers must keep a foreign exchange risk reserve sized at 20% of the notional value of each rupee derivative contract. Dealers are also barred from allowing clients to rebook foreign exchange derivatives.

Despite earlier dollar sales and a recent policy rate increase, pressure on the currency has persisted. Friday's close was 96.73 per dollar, almost unchanged from the prior day and near the weakest level of 96.96 seen in May. On Saturday the rupee firmed in the non-deliverable forward market, where the one-month contract dropped roughly 40 paise amid light trading. Dhiraj Nim, an FX strategist at ANZ Bank in Mumbai, said the arrangement takes one of the biggest sources of demand out of the market, which should help ease volatility but will reduce reserves.