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Direct RBI dollar sales to oil firms possible
May, 24th 2012

Direct sale of dollars by the Reserve Bank of India (RBI) to state-run oil companies should not be ruled out, the chief economic adviser to the prime minister said on Wednesday, after the rupee plunged to another record low.

Well, it has been done in the past... And it is also somewhat difficult to decide at what rate the dollar should be released to OMCs... But some action is not ruled out, all the options need to be weighed carefully, he said.

RBI in 2008 had sold dollars directly to the oil companies because of the scarcity that emerged due to the global economic crisis.
Speaking to CNBC-TV18, C Rangarajan also said that any special overseas bond sale backed by the government should not be aimed at meeting short-term capital flow needs and should be done only after perception about the rupee improves.

The rupee hit an all-time low of 56.22 to the dollar on Wednesday, before suspected RBI intervention pulled it back.

Worried over the declining value of rupee, Prime Ministers Economic Advisory Council Chairman C Rangarajan today suggested that Reserve Bank should intervene in the forex market to check the slide of the domestic currency.

I think it is important for the central bank to cut into the market from time-to-time in order to be able to stem the steep fall in the value of the rupee... Because sometimes the market always overshoots, the market always has a tendency to take it beyond what is being justified by the circumstances, he said in the interview.

Under those situations, I would still think that the central bank has enough role to play by intervening (in) the market..., Rangarajan added.

The rupee has been depreciating sharply in the past few days and the steep slide has been mainly attributed to higher dollar demand from importers and concerns over widening current account deficit. The domestic currency has declined as much as 12 per cent since March.

In recent weeks, the central bank has taken various steps to arrest the fall of the rupee.

Rangarajan said the temporary fall in the value of rupee is due to Euro zone crisis, but the underlying facts about capital flows are also there, therefore I think more or less the lines adopted by the RBI seems to be appropriate.

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