India Introduces Special Measures to Support Rupee, Cuts Dollar Demand from State Oil Companies

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Summary · why it matters

India has announced new measures to support the rupee, which has weakened by more than 7% since the start of this year, amid pressure from surging oil prices and rising global bond yields, with the currency trading near a record low. The measures announced by the Reserve Bank of India on October 10 will help reduce demand for US dollars in the foreign exchange market. The central bank will open a special channel to supply US dollars according to daily demand to three state-owned oil marketing companies, instead of having these companies buy dollars in the spot market. The companies granted access to the channel starting Monday, October 12, are Indian Oil, Hindustan Petroleum, and Bharat Petroleum. The central bank will allocate US dollars directly to these companies from its foreign exchange reserves. Diraj Nim, a foreign exchange strategist at ANZ bank in Mumbai, said that supplying US dollars directly to the oil companies will reduce demand for foreign currency from one of the largest groups of buyers in the market, which should help reduce currency volatility. However, this measure will also reduce India's foreign exchange reserves. After the announcement, the rupee strengthened by about 0.6% against the US dollar in the non-deliverable forward market, although trading in that market remained thin.

Impact on assets 1

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Off-coverage companies 3

Bharat Petroleum Corporation Limitedi
Private▲ PositiveMonetaryrelevance

Bharat Petroleum is granted direct access to RBI's special dollar channel, easing its USD procurement needs.

Hindustan Petroleum Corporationi
Private▲ PositiveMonetaryrelevance

Hindustan Petroleum is granted direct access to RBI's special dollar channel, easing its USD procurement needs.

Indian Oil Corporationi
Private▲ PositiveMonetaryrelevance

Indian Oil is granted direct access to RBI's special dollar channel, easing its USD procurement needs.