Oil marketing companies (OMCs) should be provided a special window by the Reserve Bank of India (RBI) to ring-fence their daily forex demand of around $250–300 million from regular market operations, according to an SBI Research report. On an annualised basis, this translates into demand of $75–80 billion that could be taken out of the market.
Such a move would improve visibility on genuine forex demand and supply dynamics, and help in better assessing the efficacy of various measures initiated by the regulator to curb unwarranted volatility, the report said.
“Putting refinance/swap mechanisms around such special window to OMCs can ensure no near-term pressure on the exchange rate dynamics,” the report highlighted, adding that RBI needs to concomitantly explore the probability of conducting “Operation Twist” that pushes up short-term yields while sobering yields on long-term papers, ensuring various reference rates remain within the prescribed bands, aligned with the policy rate in a calibrated manner. “We also believe liquidity could be simultaneously modulated to ensure the rupee also gets support,” the SBI report said.
According to the report, the rupee depreciation post February 27 is in line with other currencies, and in fact better than many currencies.
The rupee swung sharply on Monday, briefly breaching the 95-per-dollar mark to touch an intra-day low of 95.24 per dollar, as corporate arbitrage between onshore and offshore markets and importer demand for dollars eroded early gains. The currency had opened stronger and rallied nearly 1 per cent to around 93.53 per dollar after the Reserve Bank of India’s curbs on banks’ forex positions triggered heavy dollar selling. However, the gains proved short-lived amid pressures from elevated oil prices, capital outflows, and a firm dollar.
The rupee eventually settled at 94.81 per dollar, flat against Friday’s close.
