RBI eases hedging rules for currency trading
RBI allows exporters and importers to freely cancel and rebook their rupee forward contracts
Mumbai: The Reserve Bank of India (RBI) on Monday allowed exporters and importers to freely cancel and rebook their rupee forward contracts but continued with restrictions on foreign investors.
The central bank said in a notification on its website that in case of contracted exposures, forward contracts in respect of all current account transactions as well as capital account transactions with a residual maturity of one year or less, can be now freely cancelled and rebooked.
This is a rollback of previous measures where the central bank had restricted exporters’ ability to cancel and rebook forward contracts to the extent of 50% of the contracts booked in a financial year for hedging, while importers were allowed to cancel and rebook forward contracts to the extent of 25% of the contracts booked.
The restrictions were first put in place on 15 December 2011 to deter exporters and importers from speculating on the exchange rate. Forward contracts were blamed for much of the rupee depreciation in 2011 when between August and December, the rupee lost 16.5% to touch 55 a dollar. On 4 September 2013, the RBI had allowed exporters to cancel and rebook contracts upto 50% and importers were allowed to do this to the extent of 25% of the contracted exposure.
However, the central bank has kept restrictions in place for foreign institutional investors.
“As far as the exposure of the FIIs/QFIs/other portfolio investors is concerned, forward contracts booked by these investors, once cancelled, can be rebooked up to the extent of 10% of the value of the contracts cancelled," the RBI notification said, adding the forward contracts can be rolled over on or before maturity.
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