RBI Open to More Measures to Curb Forex Speculation
Reserve Bank of India (RBI) Governor Sanjay Malhotra has said the central bank is open to taking additional measures, if required, to curb speculative activity in the foreign exchange market and ensure orderly movement of the rupee. He stressed that the recent measures are intended to support genuine hedging requirements, rather than restrict legitimate capital flows.
The RBI’s recent actions include restrictions on rebooking cancelled foreign-exchange derivative contracts, the introduction of a 20% Foreign Exchange Risk Reserve for specified transactions and tighter documentation requirements. The limit for certain derivative positions without underlying exposure has also been reduced from $100 million to $5 million.
Malhotra said the central bank had observed unusually high levels of same-day cancellation and rebooking in forex derivatives, with around one-third of trades being closed or cancelled on the day they were initiated. The RBI considers such activity an indication of excessive speculative positioning.
The Governor also ruled out interpreting the measures as capital controls, saying the objective is to ensure that the foreign-exchange market primarily serves businesses with underlying currency exposures. He described the external sector as India’s main macroeconomic challenge, despite robust domestic growth, healthy bank balance sheets and improving corporate earnings.
The rupee has strengthened following the measures, gaining around 2% since the new restrictions were introduced, although market pressures remain. The RBI has indicated that it will continue monitoring conditions and act further if necessary.
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