Whalesbook
India's state-run oil refiners are limiting their use of a crucial foreign exchange credit line, highlighting worries about the rupee's stability. The currency has slipped back towards its record low of 95.21 against the U.S. dollar. This follows a brief recovery from near 95 to around 92.50, which had been supported by earlier actions from the Reserve Bank of India (RBI).
Refiners' Hesitation
Refiners are major buyers of dollars to pay for substantial oil imports, which average $12 billion–$13 billion monthly. They are hesitant to fully use a special FX credit facility offered by State Bank of India. These companies fear that if the rupee continues to weaken, their future repayment costs will rise significantly.
Two sources at state-run refiners confirmed this cautious stance. They view the FX credit line as "not cost-effective" if further rupee depreciation is expected.
One refiner is using the facility for only part of its dollar needs, buying the rest on the spot market. Another company is relying on short-term market borrowings along with limited use of the credit line. The high price of crude oil, with Brent crude around $112.9 per barrel, makes the situation tougher and reduces the attractiveness of the credit facility.
Broader Rupee Pressure
The rupee has fallen about 2% in the last eight trading sessions, similar to declines in other Asian economies that import oil, such as Thailand and the Philippines. While demand for dollars from refiners in the spot market contributes to the rupee's weakness, it's not the only reason, according to a source familiar with the central bank's view. The market will be watching upcoming RBI actions and how geopolitical events affect oil prices.