RBI has made changes in some rules to handle the rupee.
The Reserve Bank of India (RBI) on April 20 removed some restrictions imposed on forex dealers taking positions in the offshore non-deliverable forwards market (NDF) to curb rupee volatility. This step comes a few days after RBI Governor Sanjay Malhotra’s statement in which he said that these restrictions will not remain in force forever.
RBI said that now authorized dealers will not be required to limit offers of non-deliverable derivative contracts related to the rupee to resident or non-resident users. Now they can also allow a user to rebook any foreign currency derivative contract linked to the rupee.
However, RBI said that registered dealers will not be allowed to enter into foreign currency derivative contracts denominated in rupees with related parties. The exemption is limited only to cancellation or rollover of existing contracts and back-to-back transactions made with unrelated, non-resident users. RBI said that these measures have come into effect with immediate effect.
These big decisions were taken in March
Banks will continue to limit their net open positions in the onshore deliverable rupee market to $100 million at the end of each trading day. In late March, the central bank took several stringent measures to prevent the rupee from falling to new lows as Brent crude prices crossed $100 per barrel due to the worsening US-Iran war. By April 10, banks had liquidated speculative deals worth about $40 billion in the offshore NDF market, resulting in the rupee recovering from its all-time low of 95.21 against the dollar.
betting had to be stopped
In his policy meeting, the RBI Governor had said that these measures were temporary, as the RBI had seen speculative positions building up in the arbitrage market in March and had to rein in excessive volatility. The RBI had said that these measures were a response to certain market developments, adding that it was fully committed to the internationalization and deepening of broader markets.
