SBI suggests special forex window for oil companies to stabilise rupee amid rising volatility

Amid heightened volatility in global currency markets and sustained pressure on the Indian rupee, a report by the State Bank of India (SBI) has recommended the creation of a dedicated foreign exchange (FX) window for oil marketing companies (OMCs) to help stabilise the currency.

The report highlighted that the rupee’s recent depreciation is being exacerbated by the large and recurring demand for US dollars from OMCs, which import crude oil. According to SBI, this demand, estimated at $250–300 million daily and $75–80 billion annually, creates significant pressure on the forex market.

To address this, the report suggested that regulators establish a separate FX window to isolate OMC-related dollar demand from regular market activity.

“OMCs need to be offered a special window by the regulator that separates their daily demand from the market,” the report noted.

Such a mechanism would reduce market “noise” caused by bulk dollar purchases and allow a clearer reflection of genuine supply-demand dynamics in the currency market. Analysts believe this could help ease volatility and prevent sharp, sentiment-driven swings in the rupee.

The report also pointed to structural imbalances in the forex market. Domestic banks are typically long in onshore markets and short offshore, while foreign banks follow the opposite strategy—adding to complexity in currency movements.

Beyond the FX window proposal, SBI recommended additional policy tools to manage currency and interest rate pressures. One such measure is “Operation Twist,” under which the central bank could simultaneously sell short-term bonds and buy long-term securities. This would help push up short-term yields while moderating long-term rates, ensuring better alignment with policy benchmarks.

Further, the report stressed the need for active liquidity management by the central bank to support the rupee and maintain broader financial stability.

The recommendations come at a time when the rupee has been under pressure due to global uncertainties, including geopolitical tensions, fluctuating oil prices, and shifting capital flows. While regulatory interventions may provide short-term relief, experts caution that external factors will continue to influence the currency’s trajectory.