The Reserve Bank, after being a mere bystander for too long even as the rupee kept falling like a pack of cards,12.82 percent between April 2 and July 8 and a whopping 45 percent in the past two years finally behaved like a responsible central banker Tuesday. The irony is that RBI action came in after some strong measures by the markets watchdog Sebi.
Anyway, the efforts had the desired impact as the rupee shed two days of losses to close at 60.14 against the greenback with steps to rein in speculative trade and direction to oil companies to buy dollars from State Bank.Sebi late Monday evening cut the exposure that brokers and their clients can take on currency derivatives and also doubled their margins on dollar-rupee contracts. Simultaneously, RBI barred banks from trading in currency futures and exchange-traded currency options market on their own. They will however continue to trade on behalf of clients. Also, non-banking finance companies involved in asset financing were allowed to tap external commercial borrowings under the automatic route to attract dollar inflow.
With the rupee hitting a life-time low of 61.21 Monday, the Reserve Bank and Sebi measures to curb volatility and speculation in the currency derivative market.RBI also asked IndianOil, Bharat Petroleum, Hindustan Petroleum and Mangalore Refinery to source all of their 8-8.5 billion of dollar requirement every month for import of oil,from a single public sector bank.As per current practice of discovering better rates, oil firms seek quotes from several banks for their dollar needs, which adds to the speculation demand for the greenback.Prime minister Manmohan Singh, who is believed to have discussed the sharp depreciation in rupee with finance minister P Chidambaram and planning commission deputy chairman Montek Ahluwalia during the past two days, Tuesday set in motion a slew of measures to boost manufacturing and exports. While steel capacity is being raised, textile exports are targeted to jump 30 per cent.
Meanwhile, Chidambaram arrived in Washington on a four-day trip to sell the India growth story to American investors. From the RBI side, the most effective step has been asking state-owned oil companies to purchase their dollars from one public sector bank so as to curb rupee volatility State oil refiners, who are the biggest buyers of the dollars, agreed to implement the RBI order with immediate effect. The companies were even willing to accept RBI selling dollars directly to them through a single window.
Late last evening, the RBI issued orders to IndianOil, Hindustan Petroleum, Bharat Petroleum and Mangalore Refinery to stop seeking quotes from several banks for their 8-8.5 billion of monthly dollar requirement.Oil firms seeking multiple quotes for their dollar requirement was felt to be one of the reasons adding to speculation on demand for the American currency and volatility in the local unit.IOC, the nation's largest refiner, will buy their monthly requirement of USD 3.8-4 billion from its official banker State Bank. Similarly, BPCL, HPCL and MRPL will buy their dollar requirement from a single bank.
The decision follows meeting between RBI and oil firms to discuss measures to control volatility and high fluctuations in the exchange rate.The central bank had last year suggested that refiners buy their dollar requirement from a single public sector bank to end speculation in rupee market caused by competitive quotes taken from multiple banks.But the measure was never implemented as RBI did not give written order as sought by oil firms to end their practice of seeking competitive quotes.
Last year, RBI's instruction on single bank purchase was not implemented as oil firms said that banks quote different rates and they were as per CVC's guidelines required to discover the best rate through competitive bids. The oil firms had asked RBI to give a written order mandating a particular bank for dollar purchases so that they are insulated from CVC action.
