By Nidhi Verma and Suvashree Dey Choudhury
NEW DELHI/MUMBAI, July 9 (Reuters) - India's central bank has asked each state-run oil company to buy dollars from a single bank, said a source privy to the advice, in a move intended to steady the volatile currency market.
The rupee fell to a record low of 61.21 against the dollar on Monday, exacerbating fears that India could struggle to finance its current account deficit and sending policy makers scrambling for new ways to calm the market.
Oil companies are the biggest Indian buyers of dollars, so keeping down the number of people who know they are seeking dollars could help contain the rupee's volatility, dealers say.
'When oil companies ask for (dollar/rupee) rates from several banks, word spreads that there is demand from oil companies and that creates panic sometimes and pushes up dollar/rupee,' said a dealer at a foreign bank who declined to be named.
However, the measure is unlikely to reduce downward pressure on the rupee because there is so much demand for dollars, dealers say.
Emerging financial markets have been boosted by investors using cash pumped out by the U.S. Federal Reserve to buy higher-yielding assets. Now the Fed has begun to talk of winding back its stimulus policies, investors are moving back into dollars.
State-run Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp buy dollars for crude purchases through banks.
'We have been asked to buy dollars from a single bank. This order is for all IOC, HPCL and BPCL,' said a source at one of the three companies.
The Reserve Bank of India met oil retailers on Monday to discuss options to ease pressure on the rupee, including accessing dollars at market rates from a special central bank window and routing dollar sales through a single bank.
'This will help the RBI to monitor the demand-supply better. But if this arrangement also means that RBI will provide dollars to that bank, then it will check the rupee's fall,' said a treasury head at a foreign bank, declining to be identified.
The central bank has taken several steps to reduce speculation in the foreign exchange market, most recently banning banks from proprietary trading in domestic currency futures and options. The Securities and Exchange Board of India this week doubled the margin requirement on the domestic dollar-rupee forward trade.
The rupee is the worst performing currency in emerging Asia so far this year.
(Editing by Tony Munroe/Ruth Pitchford) Keywords: INDIA RUPEE/OIL
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