RBI caps refiners' weekly dollar buying to shield rupee

The Reserve Bank of India (RBI) has capped weekly dollar purchases by oil refiners to pay off their debts to Iran in order to avoid pressure on the rupee, reports quoting sources at the central bank said on Monday.

Forex dealer banks say the market can absorb up to $500-$700 million per week of forex outflows without causing much pressure on the rupee. The RBI, however, did not make any comments.

India is one of the biggest buyers of Iranian crude and the country's refiners have built up payment dues of around $6.5 billion to Iran, which was till recently under Western sanctions.

Of this, payment of an equivalent of $770 million has so far been made to National Iranian Oil Co (NIOC) through Turkey's Halkbank. State-run Union Bank of India (UBI) facilitated the payments.

The refiners had been holding back 55 per cent of payments to Iran after a channel through Halkbank was closed in 2013, and only limited payments of some of those funds was allowed after sanctions were lifted.

Following RBI's advisory, the ministry of petroleum and natural gas had, last week asked refiners to limit foreign exchange demand to $500 million a week and that the dues to Iran can be settled in three months from 30 May.

The RBI decision to stagger payments to Iran is to pre-empt any undue volatility in the domestic forex market after a volatile rupee touched a three-month low of 67.77 to a dollar last week.

Oil ministry has asked state-run refiner Mangalore Refinery and Petrochemicals Ltd (MRPL) to coordinate with other firms to ensure that weekly payments do not exceed $500 million.

MRPL is reported to have settled $500 million in Iran oil dues while Indian Oil Corp paid $250 million and Hindustan Petroleum Corp paid $17.5 million to the National Iranian Oil Company (NIOC), last week.