RBI may sell dollars, issue bonds to arrest rupee's fall

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SME Times News Bureau | 25 May, 2012
The Reserve Bank of India may sell US dollars directly to oil companies to ease pressure on the rupee, hinted the apex bank's Governor D Subbarao on Thursday.

"I am not ruling it out. I am also not saying that we are going to do it right know. It's an open issue. We have done it in past. At the moment, we have not done it so far," Subbarao told reporters when asked whether the central bank is considering direct sale of foreign exchange to oil marketing companies.

In his interaction with media after the board meeting, he also hinted at the possibility of issuance of overseas sovereign bonds to deal with the balance of payment situation.

"RBI will do whatever is necessary. Some structural changes are necessary for improvement in current account. Meanwhile, the RBI is monitoring the situation and we will do whatever is necessary, consistent with our policy," he said.

Several experts, including C Rangarajan, the chairman of the Prime Minister's Economic Advisory Council (PMEAC), have suggested that RBI should consider selling foreign currency to oil companies as they withdraw huge amounts to buy crude in the international market.

Recently, exporters' body FIEO has also viewed that direct selling of US dollars to oil companies will ensure the demand of this sector in the market will be eliminated ensuring better balance between supply and demand of Dollar resulting in arrest of weakening rupee.

It added that the apex bank should also aim to attract dollar by bringing attractive bonds on the pattern of Millennium Bonds or Resurgent India Bonds so that while we augment the supply of Dollar through this mechanism.

India in the past had raised funds from overseas markets from issues like Resurgent India Bonds to tide over the balance of payment problems. In 2008/2009 when rupee showed similar volatility oil bonds were issued by oil companies.