RBI forex window may absorb up to $12 billion in monthly demand

what happened

Moneycontrol reported that the Reserve Bank of India’s special foreign-exchange window for oil marketing companies could absorb as much as $10–12 billion of dollar demand each month. The facility is intended to ease pressure on the rupee and lower transaction costs. Announced by the RBI on Saturday, it allows IOCL, BPCL and HPCL to buy dollars from the central bank through designated banks instead of using the spot market to settle oil-import payments.

Vivek Iyer of Grant Thornton Bharat said the window could handle $300–400 million in daily demand and effectively cover all three state-run companies. The current hedging cost is roughly equivalent to an annualised forward premium of 4%, while currency risk remains. Iyer added that avoiding a 5–15 paise increase in the price of each dollar could produce substantial savings at these purchase volumes.

Prashant Vasisht of Icra said moving demand away from the spot market could benefit the rupee, although private refiners and other importers would remain active. Iyer said the immediate saving for OMCs would mainly come from transaction costs rather than the exchange rate itself. A 50-paise appreciation of the rupee would be worth about ₹550 crore a month on $11 billion of purchases.

India imports more than 88% of its oil requirements. Official data show that the country imported 19 million tonnes of crude oil worth $11.7 billion in August. Unlike the 2013 arrangement, the current facility is an outright dollar sale rather than a swap. The rupee rallied more than 3% the day after a similar window opened in 2013. The new scheme includes curbs on derivative rebooking and a lower threshold for unhedged positions. Iyer said $10–12 billion a month equals about 1.5% of current reserves: the facility buys time but does not resolve the crude-driven current-account gap.

why it matters

Shifting the largest oil companies’ dollar purchases away from spot trading could temporarily reduce market demand for dollars and support the rupee. The arrangement also draws on RBI reserves, while demand could return once the facility ends.

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