The regulator, however, did not specify the duration of the operational curbs on lenders while indicating that the April 10 (Friday) deadline for banks to scale back their net open positions to $100 million would not be extended.
“These measures are not in any sense signalling any structural change. We stand committed to the development, broadening and deepening of these markets and the internationalisation of rupee. So, obviously these measures are not going to remain there forever,” governor Sanjay Malhotra said.
RBI to review board agendas, push focus on policy over operations
The RBI published two back-to-back circulars on March 27 and April 1. The first regulation asked banks to limit their net open position in the forex market to $100 million, while the second regulation curbed corporates from holding any open positions in the NDF market.
“These measures have to be seen in the context of the event, which was leading to disruptive volatility and an artificial drying up of supply in the market which was affecting local prices,” said RBI deputy governor T Rabi Sankar, during the post-policy press conference.
RBI to simplify onboarding process for MSMEs on TReDSAfter the first guideline to limit banks’ open positions, many banks transferred their open positions to the books of their corporate clients, traders said. At the time, the rupee weakened to a record low of 95.22/$.
The currency has been strengthening consistently after the RBI curbed corporate positions. The rupee closed at 92.58/$ on Wednesday as banks rolled back their open positions, while the advance was also aided by an improved risk sentiment after a two-week ceasefire was announced between US and Iran.
“We initially just announced that these positions need to be wound down by limiting them….. We thought an indication should quieten things down. But we did not see that and saw that these positions were being assigned here and there. So we took the next measures to contain those,” Rabi Sankar said.