Will the Return of OMCs to Forex Market act as a Dampener?

When the rupee seems attaining a solid stability, after falling at record low in the last two months or such, the return of oil marketing companies (OMCs) to the foreign exchange market may pose a threat once again. Once again, heavy depreciation in rupee may decorate the headlines of the national dailies of the country.

Will the Return of OMCs to Forex Market act as a Dampener?

If we go by what dealers are anticipating, the return of OMCs carries all possibilities of threatening current rupee strength against the greenback. It was in the month of August that Reserve Bank of India (RBI) had provided a special dollar swap window to the oil marketing companies in India so as to shore up the rupee.

However, the present stability in the rupee value can’t be attributed to strengthening of fundamentals of the market, but delay in tapering and continuance of hot money flow via US route.

Until OMCs fully return to the market, saying market to be fully stabilized will be erroneous in every respect.

As per the market experts, the dollar swap window will be withdrawn in the coming weeks and this can easily result in an increasing of the dollar demand. They anticipate this demand to rise by approximately $400 million a day which is no small amount by any account.

Dealers are looking forward to a gradual return by the oil companies in the market, so that the sudden demand for the dollars in the market can be absorbed, and there results no abrupt exchange rate movement. The buying of dollars should be in more of a calibrated manner so that the rupee doesn’t bear the brunt, further resulting in losing its newly earned strength.

The bankers are still expecting the rupee coming under stress in the coming days. The depreciation of around 1% is what they are seeing in the near future, when dollar swap window sees an end and companies are back in the market.

Since Foreign Currency Non Resident (FCNR) swaps became operational post Rajan coming, about $10 to $ 15 billion have flown in the economy from foreign lands. Hence, return of OMCs in demanding dollar will definitely limit the positive impact of overseas dollar inflows. This may lead to the rupee touching 63/dollar, as per most of the economists in the country. Whatever the future developments may be, the rupee is sure to take some beating.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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