India is considering asking the central bank to offer dollars directly to oil marketing companies or through a state-run bank, a government source said yesterday, as part of steps to stem a fall in the rupee.
As an “extreme” measure, the government could also look at raising dollars by tapping expatriates to invest in bonds for non-resident Indians, said the source who has direct knowledge of the deliberations over the currency’s fall.
The rupee is Asia’s worst performing currency this year.
However, earlier yesterday it posted its strongest intraday gain since May 25 on hopes that oil companies, which are among the largest buyers of dollars in India, would now direct their demand to the central bank and not the open market.
“We could ask the Reserve Bank of India to earmark $8bn to $10bn a month separately for the public sector oil companies,” the source said, declining to be named as the discussions continue.”As an extreme step, we would be ready to raise dollars through non-resident deposits.”
Finance Ministry spokesman DS Malik declined to comment.
The source said proposed restrictions on the import of non-essential items may have only a limited impact on the falling rupee as the current account deficit continues to widen.
The rupee has depreciated more than 11% this year, closing at 72.39 yesterday after hitting a record low of 72.99 on Tuesday.
The source said it could fall further once US sanctions on Iran’s oil exports come into force in November, measures which may limit global crude supplies and push up prices.
During a 2013 currency crisis, a separate window for oil companies in which the central bank sold dollars to importers on a forward swap basis without leading to a drain down on foreign exchange reserves helped push up the rupee.
“This is one of the easiest solutions that should have been done long back,” said a dealer at a foreign bank. “Why are the policymakers waiting for people to bear such huge losses on the currency and not announcing this simple measure?”
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