A rising demand for dollars from oil companies, a slowdown in capital inflow and a surge in dollar against major global currencies have led to a volatility in the foreign exchange market, pulling down the rupee against the greenback.
Oil companies, which were using the special window opened by the Reserve Bank of India (RBI) in June and July to buy foreign exchange, are back in the market this month, with RBI’s special facility coming to an end. This has created an additional demand for the greenback, said a senior treasury executive of a multinational bank.
| UPS & DOWNS Rupee/dollar movement | ||
| Date | High | Low |
| Aug 1,’08 | 42.57 | 42.32 |
| Aug 4, ‘08 | 42.49 | 42.34 |
| Aug 5 ‘08 | 42.38 | 42.20 |
| Aug 6 ‘08 | 42.13 | 41.93 |
| Aug 7 ’08 | 42.08 | 41.87 |
| Aug 8 ‘08 | 42.28 | 42.03 |
| Aug 11 ‘08 | 42.21 | 41.91 |
| Aug 12 ‘08 | 42.45 | 42.19 |
| Aug 13 ’08 | 42.77 | 42.55 |
| Aug 14 ‘08 | 43.06 | 42.75 |
| Aug 18’ 08 | 43.65 | 43.20 |
| Aug 20 ‘08 | 43.87 | 43.66 |
| Aug 21 ‘08 | 43.78 | 43.47 |
| Aug 22 ‘08 | 43.56 | 43.30 |
| Note: Rates have been arrived on the basis of spot deals, including spot leg of swaps, reported to Clearing Corporation of India Ltd. *Weighted average rate | ||
The rupee depreciation is forcing cash-strapped oil companies to shell out more funds to buy dollars. State-run oil companies are facing pressure on two fronts, First, global crude oil prices are ruling in a range of $115-120 a barrel, after hitting a record $147 a barrel earlier this year.
With oil prices easing below $120 a barrel, there is some relief to oil firms. But that is hardly a solace for them, since the under-recovery has hit bottom lines. Sensing an adverse implication due to the dollar demand from oil companies, which were buying $300 million worth greenback daily, RBI had opened a special window for state-owned oil marketing companies at the end of May.
Under this arrangement, they could sell oil bonds and buy dollars form RBI. This reduced the pressures on the forex market and also cut down volatility, the head of treasury of a large public sector bank said.
Now, oil companies have exhausted their pool of oil bonds. RBI too closed the special window on at the end of July. Since then, OMCs are back in the market to mop up foreign currency at a time when capital flows into the Indian market have declined, pointed out a dealer of a private bank.
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A senior executive of Indian Oil Corporation (IOC) said, ‘When we were buying forex from RBI under the window, the environment was stable. Now, when we are back in the market, the companies experience tight condition in buying dollars.”
The dollar demand from oil companies and other importers has been capping the rupee’s steep rise. The forex dealers expect the rupee to remain in the range of 43.30 to 43.50 against the dollar this week. According to the Clearing Corporation of India data, the rupee which opened at 43.46 today depreciated further to close at 43.78 compared with Friday’s closing of 43.43.