RBI Urges Oil Refiners to Limit Dollar Buying to Support Rupee

The Reserve Bank of India has asked state‑run oil refiners to reduce spot market dollar purchases and rely on a special foreign exchange credit facility, according to a Reuters report. The step is aimed at easing pressure on the rupee amid rising oil prices and capital outflows.

Similar measures were used during earlier periods of external stress. The instructions have reportedly been in place for about 2 weeks.

Drivers of Rupee Pressure

The Indian rupee has come under strain due to a combination of higher crude oil prices and sustained foreign portfolio outflows. It has declined by more than 3% so far this year, making it the weakest‑performing major currency in Asia.

Concerns over geopolitical tensions linked to the Iran war added to market volatility. The rupee fell to an all‑time low beyond 95 per dollar in late March.

Special Credit Line for Oil Refiners

The RBI has asked state‑run oil refiners to meet their foreign exchange requirements through a special credit line instead of spot dollar purchases. Using this facility would help reduce immediate dollar demand in the open market.

Oil refiners are among the largest buyers of dollars due to oil import payments. Lower spot demand is expected to ease pressure on the rupee.

Role of State Bank of India

Refiners have been advised to access the special credit facility through the State Bank of India. SBI is the country’s largest bank and handles substantial merchant foreign exchange flows.

The refiners have also been encouraged to route their daily dollar purchases through SBI rather than multiple banks. Centralising these flows is intended to reduce the overall market impact.

Refiners Covered and Market Measures

The facility is available to Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. Together, these companies account for around half of India’s 5.2 million barrels per day of refining capacity.

Alongside this step, the RBI has sold dollars from its foreign exchange reserves to stabilise the currency. It has also restricted arbitrage trades and barred banks from offering non‑deliverable forward contracts to corporates.

Read More: RBI Relaxes Branch Expansion Norms for NBFCs Under New Guidelines.

Conclusion

The RBI’s directive reflects a return to crisis‑era tools to manage currency volatility. By directing refiners to limit spot dollar purchases, the central bank is targeting a major source of foreign exchange demand.

Additional measures such as regulatory curbs and reserve sales have accompanied this approach. Following these steps, the rupee has recovered around 2% from its record low and was last quoted at 93.20 per dollar.

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