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Selling Dollars To Oil Cos Possible: Subbarao

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The Reserve Bank of India may consider directly selling dollars to oil marketing companies in an attempt to arrest a further fall in the rupee, which has hit record lows for seven consecutive sessions.

"That's been an issue on the table. I am not ruling it out, I am also not saying that we will do it right now. It's an open issue, we have done it the past. At the moment we have not done it so far," the RBI governor Duvvuri Subbarao told reporters following a central bank board meeting on Thursday.

After his comments, the rupee strengthened to close at 55.65/66 to the dollar, clocking a gain for the day. Earlier in the day it hit a record low of 56.40.

While selling dollars directly to oil importers would ease volatility in the forex market, it would also deplete India's foreign exchange reserves given the country's large oil import bill.

Another possible measure to bolster the rupee, the issuance of a sovereign bond, is not under discussion for now, Subbarao said.

"I cannot say in favour or out of favour. We have done it in the past and it might be done in the future. But it is not something that is being contemplated right now," Subbarao said.

Some in the market have suggested that, to attract dollars, India could issue a sovereign-guaranteed bond through State Bank of India to non-resident Indians at attractive interest rates, similar to the Indian Millennium Deposits issued in 2000. Such a move would increase India's debt and interest liability.

Earlier in the day, the rupee plunged to a record low as global risk aversion combined with worries about India's fiscal and current account deficits and investors shrugged off India's late-Wednesday move to raise petrol prices.

Over the last month, the central bank has taken several administrative measures and has sold dollars in the market in order to prop up the rupee. Last week, it told exporters to sell half the foreign currency in their accounts and made it easier for the market to absorb large foreign exchange transactions.

"As we all understand, the rupee movement is a function of the external situation as well as developments in our current account, capital account and balance of payments," Subbarao said.

"Some structural changes are necessary for improvement in the current account," he said, adding the RBI would do whatever is needed in line with its policies. The RBI is officially agnostic about the level of the rupee but takes measures to ease volatility.

The government has been widely criticised for lack of bold measures to address its twin deficits, which has further dented investor sentiment and hurt the rupee.

The RBI governor said fiscal consolidation was needed to bring down headline inflation, which accelerated in April to 7.23 per cent as price pressures for food, fuel and manufactured items all picked up.