In a notification issued Friday, the central bank asked authorised dealers of foreign currency to comply with the rule by April 10. The cap will be on their open position on the onshore deliverable market.
“Traders must be long on the dollar in a large way. This regulation basically curbs speculative positions of a bank, which will in turn reduce pressure on the rupee,” said a currency trader at a private sector bank.
“This is called the overnight open position which traders are allowed to keep in respect of all currencies involving the rupee. For a large bank, these positions can usually be at around $1 billion both in onshore and offshore markets,” he said.
RBI prescribes limits for open positions involving the rupee for exchange rate management and orderly development of the market, depending on market conditions.
The rupee has depreciated 3.5% since the start of the war and nearly 10% in this fiscal year. High crude oil prices are clouding the outlook for the local unit, with traders now expecting the rupee to touch 96-97 per dollar if oil prices remain around $115 per barrel.
“It has now been decided that authorised dealers shall ensure that their NOP-INR positions in the onshore deliverable market shall be maintained within $100 million at the end of each business day,” RBI said Friday in its master direction on risk management and inter-bank dealings.