RBI Tightens Currency Derivatives, Rupee Strengthens Near Record Low

Mumbai – The Reserve Bank of India has rolled out a set of stringent rules for foreign‑exchange derivative trading, prompting the rupee to edge up to 95.76 per U.S. dollar, a little over a one‑percent rise.

Among the new rules, the ceiling on non‑hedged derivative exposure has been slashed from $100 million to $5 million. A Foreign Exchange Risk Reserve (FERR) will also be mandatory, requiring authorized dealers to maintain cash equal to 20 percent of the rupee equivalent of contracts exceeding $2 million.

The RBI has prohibited dealers from re‑booking any INR‑linked derivative that has already been cancelled, while still allowing roll‑overs after a contract’s maturity. Additionally, customers must provide a written statement that the underlying exposure is not already hedged with another dealer.

The market responded positively; the offshore non‑deliverable forward (NDF) market saw the rupee briefly climb to 94.17 per dollar – a 2.7 percent gain – before moderating to a modest 0.7 percent advantage.

These actions come after the central bank earlier this month offered a special credit line to public‑sector oil companies to meet dollar‑denominated needs, a move made when the rupee hovered near the 97‑per‑dollar trough. The RBI also raised the repo rate and warned of possible further monetary tightening.