The Reserve Bank of India has rolled out a package aimed at stabilising the Indian rupee by targeting dollar demand linked to oil imports, tightening oversight of FX derivatives and absorbing surplus domestic liquidity. A special USD facility will allow state-run oil marketing companies to meet daily dollar requirements without sourcing as much currency in the open market, while additional steps focus on limiting speculative positioning in INR-linked instruments.
Measures Addressing Oil Imports and Dollar Demand
A special USD facility will allow state-run oil marketing companies to meet daily dollar requirements without sourcing as much currency in the open market, while additional steps focus on limiting speculative positioning in INR-linked instruments.
New Oversight and Risk Management for FX Derivatives
On derivatives, the RBI cut the threshold for FX derivative transactions without a documented underlying asset to USD5mn from USD100mn, and it barred dealers from re-booking cancelled INR derivative trades. It also introduced a Foreign Exchange Risk Reserve requiring 20% of the notional value of each FX derivative transaction above USD2mn to be placed with the central bank. The framework raises the cost of FX hedging and is designed to reduce dollar demand and drain INR liquidity, after USD/INR climbed to the 97.60 area in recent weeks.
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