The rupee is currently trading at 96.78 against the US dollar, close to its all-time low of 96.95 hit in May.
Under the revised rules, authorised dealers will not be allowed to let users rebook foreign exchange derivative contracts involving the rupee, whether deliverable or non-deliverable, if the contracts were cancelled with any authorised dealer after the directions were issued. Rollover of contracts on maturity will continue to be permitted, subject to existing regulations.
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The RBI has also cut the threshold for undertaking foreign exchange derivative transactions to hedge contracted exposures without establishing the underlying exposure from $100 million equivalent to $5 million equivalent across all authorised dealers.
The corresponding threshold for taking positions in exchange-traded currency derivatives involving the rupee, without establishing underlying exposure, has also been reduced from $100 million to $5 million equivalent across all recognised stock exchanges taken together, the bank said.
RBI introduces 20% cash reserve for large forex derivatives
As part of its latest measures, the central bank has introduced a Foreign Exchange Risk Reserve (FERR) requirement for rupee-involving foreign exchange derivative contracts with a notional value exceeding $2 million equivalent.Under the measure, authorised dealers will have to maintain a cash reserve with the RBI equal to 20% of the rupee equivalent of the notional amount of each eligible transaction.
“This FERR shall be applicable for foreign exchange derivative contracts involving INR undertaken to hedge current account exposures where the user purchases foreign currency against the INR,” the RBI said in its circular.
Additional checks on forex hedging
The RBI has also introduced a documentation requirement for users entering into rupee-involving forex derivative contracts to hedge contracted exposures. Authorised dealers will have to obtain and retain an undertaking confirming that the same underlying exposure has not been hedged with another authorised dealer.
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The RBI said the measures are intended to strengthen market discipline and ensure appropriate risk management while maintaining an orderly and transparent foreign exchange market.
Separately, the RBI will meet the entire daily foreign exchange requirement of Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation from October 12, taking the three state-run oil marketing companies’ dollar demand out of the forex market.
India’s foreign exchange reserves fell by $12.95 billion to $734.60 billion in the week ended October 2, marking the fourth consecutive weekly decline, according to data released by the Reserve Bank of India on Friday.
Foreign currency assets fell by $10.66 billion to $604.74 billion, while gold reserves declined by $2.28 billion to $106.41 billion. The latest drop follows a $18.34 billion fall in the previous week, taking reserves around $51 billion below their record high of $785.70 billion touched in the week ended September 4.
The decline comes as the rupee remains under pressure, trading close to its all-time low against the US dollar.