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This is an archive article published on October 31, 2007
Forex hedging oils RBI146;s relations with companies
The Reserve Bank of India has permitted oil refining companies to hedge their foreign exchange exposures and also permit...
Written by Enseconomicbureau
Mumbai | October 31, 2007 12:00 AM IST
2 min read
2 min read
The Reserve Bank of India has permitted oil refining companies to hedge their foreign exchange exposures and also permit them to trade the commodity in futures up to a maximum of one year.
The RBI in its mid-term review of Annual Policy statement for the current fiscal said that it would permit oil companies to hedge their forex exposure to the extent of 50 per cent of their inventory volume of the previous quarter, through overseas over-the-counter exchange traded derivatives up to a maximum one year forward.
8220;This is a thrilling news, as we can now hedge against price movements to some extent,8221; said a senior official at state-owned BPCL.
8220;The RBI has displayed a good sense of openness but this is a double-edged sword and calls for risk management practices that are approved by the board,8221; said another top executive of an oil company. 8220;The RBI has been prudent to permit 50 per cent of the inventory volume in hedging. If the oil prices crash or the rupee depreciates, it will offset the advantages and land corporates in a soup,8221; he added. Bankers say with the rupee appreciation, the move has come as a double whammy for oil marketing companies. 8220;With the rupee strengthening, oil firms can limit their impact of global crude price rise,8221; said Parthasarathi Mukherjee, president, Axis Bank.
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