Aimed at curbing speculative positions in the foreign exchange market

In the wake of steady weakening of the rupee against the dollar, the Reserve Bank of India has stepped in to announce certain non-direct intervention measures.

As a consequence, re-booking cancelled forward contracts, whatever the type and tenor of the underlying exposure, by resident and foreign institutional investors is disallowed.

Hitherto, forward contracts booked to hedge current account transactions regardless of the tenor were allowed to be cancelled and rebooked. Such facility was also available to hedge capital account transactions that were falling due within one year.

The apex bank has now made it clear that forward contracts once cancelled cannot be rebooked.

The RBI has also modified the currency risk hedging norms for importers and exporters. Importers were hitherto allowed to hedge currency risk on the basis of a declaration of an exposure based on past performance up to the average of the previous three financial years' actual import/export turnover or the previous year's import/export turnover, whichever is higher. Contracts booked in excess of 75 per cent of the eligible limit were to be on a deliverable basis and, hence, could not be cancelled. The apex bank has now revised these norms. As a result, this facility stands reduced to 25 per cent of the limit as compounded by above for importers who avail themselves of the past performance facility. If importers have already used up in excess of the revised or reduced facility, they will not be allowed further bookings. Further, the RBI has made it clear that this facility will be available on fully deliverable basis only.

The RBI has also reduced the net overnight open position limit (NOOPL) of authorised dealers across the board. The move ostensibly is intended to prevent speculations in the foreign exchange market. Simultaneously, it has asserted that the intra-day open position/ daylight limit of authorised dealers should not exceed the RBI-approved NOOPL. The apex bank has also indicated that these arrangements would be reviewed periodically in line with the evolving market conditions.

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