India caps Iran payments to shield rupee

Reports say the Reserve Bank of India (RBI) has capped weekly dollar purchases by oil refiners to pay off their debts to Iran in order to avoid pressure on the rupee.

"RBI wants to stagger payments to Iran to pre-empt any undue volatility in the domestic forex market," Reuters has quoted an unnamed Indian source as saying.

"A $500-$700 million per week kind of flow should be easily absorbed by the market," the report has quoted another official with knowledge of the RBI's guidance as saying.

India’s refiners owed Iran $6.5 billion for previous oil purchases.  They have so far cleared $770 million in euros through Turkey's Halkbank to National Iranian Oil Co (NIOC).  They are now preparing to make the further settlements of their debts to Iran.

The debts accumulated after the refiners had to hold back 55 percent of payments to Iran when a channel through Halkbank was closed in 2013.

Last week, on the basis of an RBI advisory, India's oil ministry wrote to refiners saying the remaining dues can be settled in three months from 30 May and told companies to ensure demand for foreign exchange is limited to $500 million per week, the sources told Reuters.

The rupee touched a near three-month low of 67.77 to the dollar last week, partly due to dollar purchases to settle a portion of the Iranian oil dues the week before.

India's oil ministry has asked state refiner Mangalore Refinery and Petrochemicals Ltd to coordinate with other firms to ensure that weekly payments do not exceed $500 million.

MRPL has settled $500 million in dues to Iran followed by $250 million by Indian Oil Corp. Last week Hindustan Petroleum Corp paid $17.5 million to NIOC, Reuters concluded.

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