New Delhi: For a while now, the Indian rupee has been facing significant downward pressure. The Reserve Bank of India (RBI) has recently taken strong measures to halt its unprecedented slide. The rupee has hit its lowest level on record, closing at 96.73 against the US dollar, just shy of its all-time low of 96.96 set in May. In response, the RBI has introduced several stringent actions. To manage the demand for dollars and provide immediate support to the rupee, the central bank has allowed three major state-owned oil companies access to its foreign exchange reserves.
RBI Took Big Step
According to a report by Reuters, the largest source of dollar demand in India comes from crude oil imports. With this in mind, the RBI has established a special mechanism to fulfill the daily dollar requirements of Indian Oil (IOCL), Hindustan Petroleum (HPCL), and Bharat Petroleum (BPCL). Starting Monday, these oil companies will be able to borrow dollars directly from the RBI’s reserves instead of buying them from the market. This move aims to stabilize the currency market by preventing sudden spikes in dollar demand and controlling sharp fluctuations in the rupee’s exchange rate.
To combat speculation against the rupee, the RBI has implemented stricter regulations on the currency derivatives market. The central bank has reduced the position limit in exchange-traded currency derivatives from $100 million to $5 million. Foreign exchange dealers are now prohibited from rebooking any foreign exchange derivatives trades for clients. Traders must reserve 20 percent of the notional amount of each transaction as a foreign exchange risk reserve to deter artificial market turbulence.
The rupee’s current standing in the foreign exchange market is highly delicate. Despite closing at 96.73 against the dollar on Friday, very close to its all-time low of 96.96 in May, the impact of the RBI’s decisive actions on Saturday was promptly felt in the non-deliverable forward (NDF) market. In a subdued trading environment, the one-month dollar-rupee contract dropped by approximately 40 paise.