RBI Eases Rupee NDF Curbs:
The Reserve Bank of India (RBI) partially rolled back earlier restrictions on rupee-linked non-deliverable forward (NDF) transactions after improved market stability and reduced arbitrage risks.
- Banks are now permitted to undertake limited related-party transactions such as cancellation and rollover of existing contracts, while broader restrictions on forex derivatives remain in place.
- However, the move is unlikely to significantly affect the spot rupee, as broader global factors such as crude oil prices, geopolitics, and dollar strength continue to drive currency movements.
- The $100 million cap on net open positions in the onshore market remains unchanged, reflecting a cautious regulatory stance amid global uncertainties.
- The restrictions were imposed due to heightened forex volatility following West Asia geopolitical tensions and rising arbitrage positions between onshore and offshore markets.
- Non-Deliverable Forward (NDF):
- A Non-Deliverable Forward is a cash-settled derivative contract used to hedge or speculate on currencies where physical delivery is restricted.
- Widely used in offshore markets for currencies like the Indian Rupee, especially by foreign investors.
NDF markets can create arbitrage opportunities between onshore and offshore foreign-exchange markets.
