RBI Steps In to Support Rupee as It Nears Record Low

New Delhi: With the rupee trading close to its all-time low against the US dollar, the Reserve Bank of India (RBI) on Saturday announced a series of measures to support the currency, including a special facility to meet the dollar requirements of state-run oil companies.

The move is aimed at reducing demand for dollars in the foreign exchange market and easing pressure on the rupee.

Under the new arrangement, the RBI will directly provide dollars through designated banks to three major public sector oil companies — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — from October 12.

These companies require large amounts of dollars to pay for crude oil imports.

By meeting their requirements separately, the RBI hopes to reduce the demand for dollars in the open market and prevent further pressure on the rupee.

The central bank had introduced a similar arrangement in 2013 when the rupee came under severe pressure during the global financial market turmoil known as the ‘taper tantrum’.

The RBI also tightened rules for foreign exchange derivatives, which are financial contracts used by businesses and investors to protect themselves against currency fluctuations or bet on exchange rate movements.

Under the revised rules, traders will no longer be allowed to cancel and rebook certain contracts involving the rupee.

However, contracts can be extended when they mature.

The RBI also reduced the limit for taking positions without proving an underlying business requirement from $100 million to $5 million.

The move is intended to discourage speculative trading against the rupee.

In another measure, banks handling certain foreign exchange derivative contracts involving dollar purchases exceeding $2 million will have to maintain a cash reserve equal to 20 per cent of the contract value with the RBI.

The reserve must be maintained daily until the contract ends.

The RBI has also directed banks to report these reserves daily and warned against attempts to bypass the rules.

The measures come amid continued pressure on the rupee from rising global oil prices, foreign investment outflows and higher interest rates overseas, which have made investments in foreign markets more attractive.

The rupee closed at 96.71 against the dollar on Friday, gaining 17 paise, but remained close to its record low of 96.96 reached in May.

India’s foreign exchange reserves have fallen by more than $50 billion in recent weeks to $734 billion as of October 2.

RBI Governor Sanjay Malhotra had said on Wednesday that the central bank would take steps to stabilise the rupee, which he described as undervalued.

The latest measures are intended to curb excessive demand for dollars, discourage speculation and help the rupee stabilise against the US currency.