RBI to reopen OMC window on dollar rush
Dec 02 2013 , Mumbai
Rupee stays strong as RBI’s special swap window closes
RBI has reiterated that volatility in the domestic forex market has decline in the past few weeks. Oil marketing companies (OMCs) are sourcing their dollar requirements from abroad to keep the demand off the forex market at home. The rupee opened stronger on Monday after GDP growth was announced on Friday to be 4.8 per cent, a tad better than expected. But the currency lost some of the gains intra-day after RBI said OMCs would source all their dollar demands from the market. Still, the rupee closed better at Rs 62.31 against the dollar.
RBI said in a release that it “will consider opening the swap window to OMCs on the rare day when there is a pronounced spurt in dollar demand in the FX market.”
Partha Bhattacharyya, currency market expert, said, “Even before RBI formally shut this window OMCs had been covering their requirements from the market since the middle of October. RBI has kept the flexibility to use the swap window on days there is large, bunched up dollar demand… RBI may be expected to intervene to prevent a sharp fall in the rupee. We may expect a narrow range for the rupee, probably 61 to 64 in the short to medium term.”
The RBI further said, “Beginning last week the public sector OMCs have started accessing the forex market for their entire daily dollar demand. Going forward, the OMCs have been advised to smoothen their daily demand, so that the upcoming bunched up demands on any particular day is covered in advance in the forward forex market or covered on days with low demand.”
The OMCs have been advised to utilise their revolving lines of credit extended by banks with the specific objective of tiding over humps in the dollar demand, apart from forward covering.
The oil companies have also been told to source more than their daily requirements so that there is no bunching up of demand because the forex market is now stable. This process was put in place last week and it is expected that the excess demand of the OMCs will be funneled to meet their swap (second leg) commitments over a period of time.
“As indicated earlier, RBI is closely monitoring the market and will continue to keep all options open regarding settlement of OMC swaps, including rupee settlement, depending on the evolving flow dynamics in the market,” said the release.
The swap windows for FCNR (B) funds and banks’ overseas borrowings ended on November 30. The two windows together have mobilised $34 billion. Since windows are now closed, going forward, any new funds raised from FCNR deposits or from banks’ borrowings will flow directly into the market instead of going into RBI’s kitty.