Rupee under pressure: RBI announces fresh steps to curb speculation in forex market

The Reserve Bank on Wednesday announced additional restrictions on foreign exchange derivative transactions involving the rupee, tightening norms for authorised dealers amid heightened currency volatility and a sharp depreciation against the US dollar.

In a circular issued on April 1, the central bank said banks authorised to deal in foreign exchange will no longer be allowed to offer non-deliverable derivative contracts involving the rupee to either residents or non-residents.

However, banks may continue to offer deliverable foreign exchange derivatives for genuine hedging requirements, provided that users do not undertake offsetting non-deliverable derivative positions.

The RBI has asked dealers to seek necessary documentation from clients to ensure compliance.

The central bank also barred rebooking of any cancelled foreign exchange derivative contracts involving the rupee, whether deliverable or non-deliverable, with immediate effect.

The banking regulator said authorised dealers shall not undertake any forex derivative contracts involving the rupee with their related parties, as defined under applicable accounting standards.

“These instructions shall be applicable with immediate effect, until further review,” the RBI said.

The directions have been issued under provisions of the Foreign Exchange Management Act (FEMA), 1999.

The latest measures come against the backdrop of heightened volatility in the rupee, which recently breached the 95-per-dollar mark in intra-day trade before recovering partially.

On Monday, the rupee swung sharply by 165 paise during intra-day trade as escalating tensions in West Asia unsettled global markets and fuelled risk-off sentiment.

The unit hit an all-time intra-day low of 95.22 before settling at 94.70 against the US dollar, up 15 paise from the previous close.

The central bank had earlier, on March 27, capped the net open position (NOP-INR) that banks can hold overnight at USD 100 million, in a bid to curb speculative positions and stabilise the currency.

Forex traders said the rupee remains under pressure due to a strong dollar and elevated crude oil prices, with safe-haven demand keeping the dollar index above the 100 level.

Meanwhile, Finance Minister Nirmala Sitharaman said the country’s economic fundamentals remain strong and asserted that the rupee is “absolutely going fine” compared to other emerging market currencies.

Minister of State for Finance Pankaj Chaudhary said the rupee’s value is market-determined and influenced by multiple global and domestic factors.

The rupee has depreciated nearly 10% against the US dollar in the current financial year.