Volatility in  the domestic foreign exchange market has  diminished in the last few weeks.

Beginning last week, the Public Sector Oil Marketing Companies (OMCs) have started accessing the FX market for their entire daily dollar demands.  Going forward, the OMCs have been advised to smoothen their daily dollar demand, so that the upcoming bunched up demands on any particular day is covered in advance in the forward forex market or covered on days with low demand. Apart from covering in the forward markets, the OMCs have also been advised to utilize the revolving lines of credit made available by banks with the specific objective of tiding over humps in dollar demands. Finally, the Reserve Bank will consider opening the swap window to OMCs on the rare days when there is a pronounced spurt in dollar demand in the FX market.

Given the backdrop of broad stability returning to the forex market,  on the basis of an ongoing review of the demand conditions in the market,  OMCs have been allowed to source dollars even  beyond their  normal daily requirements. This process has already been put in place last week and it is expected that the excess demand of the OMCs will be funneled to meet their swap (second leg)  commitments over a period of time.

As indicated earlier, the Reserve Bank is closely monitoring the market  and will continue to keep all options open regarding settlement of  OMC swaps, including Rupee settlement, depending upon the evolving flow dynamics in the market.

In line with our earlier announcement, the swap windows for FCNR(B) funds and Banks' Overseas Borrowings have since been closed. The two swap windows have mobilized a sum of USD 34 billion. Since the RBI swap windows are now closed, going forward, any new funds raised from FCNR deposits or from banks' borrowings will flow directly into the market instead of to RBI's FX reserves .

Alpana Killawala
Principal Chief General Manager

Press Release : 2013-2014/1111