India’s central bank is looking at ending an emergency facility under which it has directly sold dollars to state refiners since late August, according to three people with knowledge of the matter. The rupee fell.
The Reserve Bank of India is in talks with the companies to gauge the potential impact of withdrawing the measure on the exchange rate, two of the people said, asking not to be named as the discussions are private. The facility stays operational and “any tapering of the window, as and when it occurs, will be done in a calibrated manner,” the RBI said in a statement on its website today.
The dollar supplies were announced on Aug. 28, when the rupee slumped to a record low of 68.845 against the greenback, to temper excess demand for foreign exchange in the domestic market. The local currency has rebounded more than 12 percent since. India’s three biggest state refiners bought about $300 million a day from the local spot market to pay for oil imports before the RBI move, Standard Chartered Plc said in August. Asia’s No. 3 economy imports about 80 percent of its oil.
“The RBI could be trying to signal that some sort of normalcy has been restored to the market,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “The markets will now be a bit cautious on the rupee and investors will be less inclined to” buy the currency, he said.
RBI Governor Raghuram Rajan, who raised the benchmark rate last month for the first time since 2011 to counter inflation, has said the bank will gradually scale back the dollar supplies as the rupee stabilizes.
The rupee reversed the day’s 0.5 percent gains and slumped as much as 0.8 percent to 61.7100 a dollar before trading at 61.3225 as of 1:46 p.m. in Mumbai, according to prices from local banks compiled by Bloomberg.
One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, fell 38 basis points, or 0.38 percentage point, to 13.04 percent, according to data compiled by Bloomberg. The gauge touched 12.83 percent earlier, the lowest level since Aug. 16.
Under the contingency measure, the RBI provided the U.S. currency to Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., according to the central bank.