Concluding one of the most successful foreign fund mop-up drives in recent times, the Reserve Bank of India (RBI) said on Monday that it had garnered a whopping $34 billion through two special swap facilities opened in early September to help prop up the rupee.
At the same time, the RBI moved towards normalising the foreign exchange market by asking oil marketing companies to source all their dollar requirements from the market, starting last week. “Going forward, the OMCs have been advised to smoothen their daily dollar demand, so that the upcoming bunched-up demand on any particular day is covered in advance in the forward forex market or covered on days with low demand,” said the central bank in a press release.
Importantly, while the RBI closed the special swap window opened for OMCs on August 28, it added that dollars could be provided to OMCs directly on “rare days” when there is a spurt in dollar demand.
The rupee, which traded at an intra-day high of 61.97/$, slipped marginally to close at 62.32/$ on Monday as markets priced in the possibility of higher demand for dollars from OMCs.
The rupee has gained more than 10% from its all-time low of 68.85/$ touched in August as the RBI's decision to supply dollars directly to OMCs effectively took away demand worth $300-400 million on a daily basis.
“ Much of the movement in the currency is driven by the NDF market. I don't think any NDF player, after the CAD data, can now make a case for a run on the rupee like we saw earlier. Having said that, we are still exposed to the ebb and flow of capital and global risk temperament,” said Abheek Barua, chief economist at HDFC Bank.
Incidentally, the RBI unexpectedly released the July-September current account deficit data after markets closed on Monday, which showed a sharp fall in the CAD to 1.2% of GDP in the second quarter of the fiscal.
The currency markets took comfort from the strong inflows through the special swap windows that enabled banks to bring in dollars through foreign currency non-resident (FCNR) deposits and overseas borrowings till November 30 at a discounted swap cost.
Economists said that more than 70%, or around $24 billion, of the $34 billion that came in through the swap windows would have been through FCNR deposits. Banks had aggressively marketed the product, specially to high net-worth individuals, by offering them