The Reserve Bank of India (RBI) on April 20 withdrew some of the restrictions imposed on forex dealers taking positions in the offshore non-deliverable forwards market (NDF) to curb rupee volatility. The move comes a few days after RBI governor Sanjay Malhotra said the curbs would not remain in place indefinitely.
Authorised dealers shall no longer be required to restrict offering non-deliverable derivative contracts involving the rupee to resident or non-resident users. They can now also permit a user to rebook any foreign exchange derivative contract involving the rupee.
The RBI, however, said authorised dealers will not be allowed to enter into rupee-denominated foreign exchange derivative contracts with related parties. Exemptions are limited to the cancellation or rollover of existing contracts and back-to-back transactions conducted with non-related, non-resident users. These measures come into effect immediately, the RBI said.
Banks must continue to limit their net open positions in the onshore deliverable rupee market to $100 million at the end of each business day. Late in March, the central bank came out with a string of stringent measures to halt the rupee’s free-fall towards new lows, as Brent crude surged past $100 a barrel on worsening US-Iran war.
As of April 10, banks unwound nearly $40 billion of speculative trades in the offshore NDF market, which saw the rupee rebound from a record low of 95.21 against the dollar. In its bimonthly policy review, Malhotra said the measures were temporary, as the RBI had seen speculative positions being built in the arbitrage market in March and had to clamp down on excessive volatility.
These were reactions to specific market developments, RBI said, adding it remains committed to the internationalisation and deepening of broader markets.
