Targeting USD oil demand would boost rupee: Nomura

Any RBI move to supply dollars directly to India's oil importers is likely to have a significant positive impact on the rupee, at least initially, says Nomura.

It could equate to a reduction in market demand for dollars by USD 8.8 billion per month, or the average monthly value of petroleum and crude imports in the last fiscal year, the report says. Also Read: As going gets tough for Re, will it get rougher for Nifty?
Although the RBI could actively sustain dollar supply for a few months, the central bank may not be keen to draw down FX reserves substantially, Nomura says.
RBI may buy back oil bonds to offset the negative impact on rupee liquidity. It estimates oil companies holdings of such bonds at USD 4 billion.
RBI unlikely to issue dollars without sterilisation, or at least cuts in the cash reserve ratio or aggressive bond purchases via open market operations.