India central bank urges refiners to limit dollar buying

The central bank of India has reportedly requested that state-run oil refiners reduce their spot market purchases of U.S. dollars. According to sources familiar with the matter, the Reserve Bank of India (RBI) is encouraging these entities to utilize a specialized credit line to meet their foreign exchange requirements, a strategy intended to alleviate persistent pressure on the national currency. This directive comes as the rupee has struggled against a backdrop of surging prices for Brent Crude Oil and significant outflows of foreign portfolio capital. The currency has depreciated by more than 3% this year, reaching record lows and marking it as one of the weakest performers among major Asian currencies. By shifting demand away from the spot market, officials hope to curb the immediate volatility impacting the exchange rate. The state-owned refiners, which include Indian Oil Corp, Hindustan Petroleum Corp, and Bharat Petroleum Corp, have been advised to access this credit facility through the STATE BANK OF INDIA. As the country's largest state-backed financial institution, the bank is positioned to centralize these large-scale transactions. The current measures echo previous interventions used during the onset of the war in Ukraine. Beyond the credit line, the central bank is also urging refiners to route their daily dollar requirements through a single primary lender rather than distributing orders across various commercial banks. > "With SBI already handling sizeable merchant flows, funneling oil-related FX demand through SBI can help reduce the overall market impact." Geopolitical tensions, particularly those involving Iran, contributed to the rupee falling past the 95 per dollar threshold in late March. In response, the RBI has implemented several crisis-era protocols over the last two weeks, including selling dollars from its foreign exchange reserves and tightening regulations on arbitrage trades that could exacerbate market swings. These interventions appear to have provided some relief, with the rupee recently trading at 93.20 per dollar.