RBI Eases Rupee NDF Restrictions Amid Market Stability
RBI partially eases rupee NDF curbs on banks after market stability
Business Standard
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The Reserve Bank of India has partially relaxed restrictions on banks regarding rupee-linked non-deliverable forwards (NDFs) following improved stability in the foreign-exchange market. While banks can now engage in certain transactions, a $100 million cap on net open positions remains in effect as geopolitical tensions continue to pressure the rupee.
- 01RBI rolled back some restrictions on rupee-linked NDFs after market stability.
- 02Banks can now cancel and rollover existing contracts with related parties.
- 03The $100 million cap on net open positions in the onshore market remains.
- 04Geopolitical tensions continue to affect the rupee's value against the dollar.
- 05The RBI's actions aim to support genuine hedging demand while managing risks.
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On Monday, the Reserve Bank of India (RBI) partially eased restrictions on banks concerning rupee-linked non-deliverable forwards (NDFs), which were initially imposed on April 1 due to heightened volatility in the foreign-exchange market. The revised rules allow banks to engage in certain related-party transactions, including the cancellation and rollover of existing contracts. However, banks are still prohibited from undertaking all foreign-exchange derivative transactions with related parties, and the $100 million cap on net open positions in the onshore deliverable market remains unchanged. Market analysts noted that the RBI's decision reflects a lower perceived arbitrage risk, as banks complied with earlier regulatory deadlines. The rupee has been under pressure, depreciating by over 4% against the dollar amid geopolitical tensions in West Asia, particularly following the US Navy's seizure of an Iranian vessel, which raised concerns over energy flows and pushed crude oil prices higher. Despite the relaxation of some restrictions, analysts believe the move will not immediately impact the spot rupee, as broader global factors continue to influence currency trends. The RBI's cautious approach aims to balance genuine hedging needs while preventing destabilizing capital flows.
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The RBI's easing of restrictions may provide banks with more flexibility in managing currency risks, but the ongoing geopolitical tensions and high crude oil prices could still affect inflation and the current account deficit in India.
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