The USD borrowing allowance for OMCs to fulfil working capital requirements is a limited but effective game changer for the Rupee.
The USD borrowed would be paid for oil payments directly and USD rollovers would effectively manage the local demand for dollars. Keeping the exposure open , is quite fine, as the RBI can intervene when demand is thin to sell dollars to keep the Rupee in check.
It’s a very smart and well thought out move, after a long time .
1. announcing a 36000 crore OMO schedule in advance
2. markets nervous about liquidity and borrowing costs
3. A reduction in fuel prices
4. NRI and other USD deposit schemes on the cards
5. Inflation under control
My sense is RBI , contrary to the majority 25 BP hike expectation , may surprise with no hike in the 5 Oct policy.
In addition ,There could be changes to the way rates are transmitted and also some leeway on NPA provisiong .