RBI opens forex swap window for oil marketing companies

MUMBAI: The Reserve Bank of India on Wednesday opened a forex swap window for public sector oil marketing companies on Wednesday to calm volatile forex markets. The central bank will lend dollars to oil marketing companies for equivalent rupees which the marketing companies would return over a period of time.

"Under the swap facility, the Reserve Bank will undertake sell/buy USD-INR forex swaps for a fixed tenor with the oil marketing companies through a designated bank. The swap facility gets operationalised with immediate effect and will remain in place until further notice," said the central bank in a notification.

This is done with an aim to reduce volatility in the rupee market which has been losing ground against the dollar. With its 4% slide on Wednesday to a life low of 68.82 to the US dollar, the rupee has lost a fifth of its value this year.

"There are no counterparties from whom oil marketing companies can purchase dollars. There are no sellers in the market. Dollar sellers are available at a very high price. An oil marketing company, entering the market to buy dollars, will affect the rupee further,'' said Ashutosh Khajuria, president - treasury at Federal Bank.

"With this facility, the Reserve Bank is trying to reduce volatility in the rupee market. Oil marketing companies can now swap rupee for dollars and after a definite time period return the dollars back to RBI," he said. "This will give time to the oil marketing companies to return dollars and also not affect the country's reserves. Even if the oil marketing company is not able to return the dollars in the said time frame the central bank has the option of rolling over the swap," said Khajuria.