RBI Roll Backs Some Restrictions On Rupee Trade

In a notice, the central bank withdrew two key restrictions. First, it allowed authorized dealers, including banks and financial institutions, to once again offer non-deliverable futures (NDFs) to both Indian residents and users abroad. Secondly, it also lifted the ban on users rebooking foreign exchange derivative contracts canceled after April 1.

However, authorized dealers are still unable to obtain rupee-based foreign exchange derivative contracts with related parties. The only exceptions are cancellation or transfer of already existing contracts and successive transactions with unrelated non-resident users.

These measures were implemented as the rupee breached the 95 per dollar mark for the first time in late March due to a combination of rising crude oil prices, ongoing geopolitical tensions, foreign investor outflows and strong dollar demand globally. The currency recovered by more than 2 percent after the first measures were announced on March 27.

According to Abhishek Goenka, founder of IFA Global, the RBI restriction on cancellation and re-booking against the same underlying risk had created difficulties for those who had genuine reasons, such as delay in payment/receipt.

Additionally, it would be operationally difficult for banks to track and detect whether the same basis was used for rebooking. They would have to rely on commitments from customers. The perception that such movements could be perceived as reactionary.

“The relaxation in cancellation and rebooking procedures with related parties would create problems in protecting the Indian branches of head offices of foreign banks from INR-related risks of trade with overseas customers.”

Meanwhile, the Indian rupee fell by 20 paise on the day to 93.10 after a two-session rise due to the sharp rise in oil prices. Brent crude oil increased by more than 5 percent, approaching $95 per barrel.

The move comes after renewed tensions around the Strait of Hormuz, raising concerns about potential supply disruptions. The rise in crude oil has intensified global inflation concerns, led to a reassessment of interest rate expectations and caused US Treasury yields to rise.

In this environment, the US Dollar Index is trading around 98.25, largely unchanged from last week’s close but maintaining an upward trend.

Safe-haven demand for the dollar has strengthened as market participants reacted to geopolitical uncertainty and rising inflation risks, strongly supporting the dollar.