Public
sector oil companies are among the important participants in the money, foreign
exchange, credit and bond markets. Consequently, liquidity and other related issues
currently faced by these entities arising from the unprecedented escalation in
international crude prices have systemic implications for the smooth functioning
of financial markets and for overall financial stability. It has, therefore, become
necessary for the Reserve Bank of India to put in place Special Market Operations
on an ad hoc basis so as to minimise potential adverse consequences for
financial markets in a transparent manner. Accordingly, it has been decided to
- conduct
open market operations (outright or repo at the discretion of the Reserve Bank)
in the secondary market through designated banks in oil bonds held by public sector
oil marketing companies in their own accounts subject to an overall ceiling of
Rs.1,000 crore on any single day
- provide equivalent
foreign exchange through designated banks at market exchange rates to the oil
companies.
The Special
Market Operations would constitute only a fraction of the total turnover in the
money and foreign exchange markets but are intended to have the impact of reducing
volatility. Further, the Special Market Operations would improve the access of
public sector oil companies to domestic liquidity and alleviate the lumpy demand
in the foreign exchange market in the current extraordinary situation. It
may be recalled that on earlier occasions of market stress, the Reserve Bank had
given assurances of domestic as well as foreign currency liquidity support to
financial markets, including direct support to specific entities. These
measures are ad hoc, temporary in nature and will be reviewed on a continuous
basis. AlpanaKillawala
Chief
General Manager Press Release : 2007-2008/1534 |
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