Industry Odisha Bureau, Oct 10: The Reserve Bank of India on Saturday unveiled fresh hedging rules to lift rupee against dollars. RBI has opened a special window to meet the daily dollar requirements of oil companies to ease the pressure on spot market.
RBI provides oil companies dollars directly from its foreign exchange reserves and Indian Oil, Hindustan Petroleum and Bharat Petroleum will be allowed to access the facility from Monday.
The central bank has responded by tightening rules on speculative corporate activity and raising the cost of protection against further rupee weakness.
The RBI is “trying to moderate potentially destabilising derivative demand, improve the integrity of underlying exposure verification and discourage circumvention through multiple transactions or repeated rebooking,” a person familiar with the central bank’s thinking said, commenting on condition of anonymity as they are not authorized to speak to the media.
The central bank has mandated that forex dealers maintain a 20% “foreign exchange risk reserve” on derivative contracts used to buy foreign currency against the rupee, for the purposes of hedging current account transactions. The requirement applies to transactions with a notional value exceeding $2 million.
The reserve requirement will lift the cost of buying protection against further rupee weakness, helping to discourage excessive hedging, two bankers said, speaking on the condition of anonymity.
Chinese authorities have previously used similar tools to discourage one-way bets against the yuan.
India’s central bank has also slashed the limits on the size of derivative transactions users can undertake without proof of underlying exposure to $5 million from $100 million. The lower cap applies across all derivative products, including exchange-traded futures.
