30 Aug 2013
Flash: RBI announced FX swaps with public sector oil companies - Nomura
FXstreet.com (Barcelona) - The RBI announced FX swaps directly with public sector oil marketing companies (OMCs) to provide them with short-term USD liquidity, FX Strategists at Nomura note.
Key Quotes
"This measure should reduce spot USD demand given that net oil imports (USD9bn, based on latest 12m average) constitute about half of the overall trade deficit (USD16.5bn, based on latest 12m average). Although the details of exact mechanism are not yet known, consensus expect the swaps to be about six months in tenor, as this would adequately prolong the actual USD buying from OMCs until that time."
"This measure is only likely to provide a short-term relief to INR, as it does not address the structural current account and fiscal deficits. The measure also runs the risk of a significant increase in USD demand upon expiration (assuming a six-month tenor of the swap), when OMCs will not only have to deliver USD back to the RBI, but also purchase USD through spot (if the scheme is not maintained)."
"Corporates utilising these FX swaps are also subject to significant FX risks if INR depreciates over the medium-term. Furthermore, we expect market concerns regarding the RBI's vulnerability to increase if the arrangement remains in place for a prolonged period.
Therefore, we take this dip in USD/INR 1m NDF as an opportunity to increase our short INR position by additional 50%."
Key Quotes
"This measure should reduce spot USD demand given that net oil imports (USD9bn, based on latest 12m average) constitute about half of the overall trade deficit (USD16.5bn, based on latest 12m average). Although the details of exact mechanism are not yet known, consensus expect the swaps to be about six months in tenor, as this would adequately prolong the actual USD buying from OMCs until that time."
"This measure is only likely to provide a short-term relief to INR, as it does not address the structural current account and fiscal deficits. The measure also runs the risk of a significant increase in USD demand upon expiration (assuming a six-month tenor of the swap), when OMCs will not only have to deliver USD back to the RBI, but also purchase USD through spot (if the scheme is not maintained)."
"Corporates utilising these FX swaps are also subject to significant FX risks if INR depreciates over the medium-term. Furthermore, we expect market concerns regarding the RBI's vulnerability to increase if the arrangement remains in place for a prolonged period.
Therefore, we take this dip in USD/INR 1m NDF as an opportunity to increase our short INR position by additional 50%."