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RBI Loosens Forex Trading Curbs, Keeps $100M Cap
The Reserve Bank of India (RBI) has updated its foreign exchange trading rules, partially lifting restrictions on offshore trades. This move aims to allow businesses to hedge their risks more easily while the central bank watches for speculative trading.
Banks Can Rebook Forex Derivatives
A central bank circular issued Monday removed earlier limits that prevented banks from offering certain derivative contracts to both local and foreign clients. Banks can now rebook or cancel these contracts immediately. This adjustment is intended to help importers and exporters manage genuine hedging needs after they faced practical difficulties.
Related Party Transactions Still Restricted
While broader curbs are eased, the RBI clarified that restrictions will continue for transactions between related parties. Banks are still barred from offering derivative contracts to related entities, with the only exceptions being for canceling or rolling over existing contracts.
$100 Million Cap on Open Positions Unchanged
Crucially, the $100 million cap on net open positions in the onshore foreign exchange market remains in place. This shows the RBI is committed to preventing speculative trading and managing currency swings. Previous measures by the central bank helped the Indian rupee strengthen from a record low of 95.12 to around 92.58. The rupee closed at 93.12 on Monday.
RBI Targets Arbitrage to Stabilize Rupee
RBI Governor Sanjay Malhotra had previously explained the rules targeted arbitrage opportunities between the non-deliverable forward (NDF) and deliverable markets. These opportunities could increase volatility and hurt price discovery. The current rollback suggests growing confidence in market stability and current controls. Traders expect the rupee to trade between 92.50 and 93.50 in the near term, with a slight weakening trend, supported by these forex measures and a special channel for oil importers.