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Lenders in India are urging the central bank to relax tighter rules for foreign-exchange transactions, which came as bets that could exert strain on the rupee climbed to at least $30 billion, according to people familiar with the developments.
In talks on Saturday, March 28, banks sought to delay an April 10 deadline for them to comply with the new rules that would require a significant amount of positions to be closed, the people said, asking not to be named discussing private matters. They said unwinding at such a scale would trigger large losses on their books and also urged that the new rules apply only to new bets, the people said.
The Reserve Bank of India said after markets closed on Friday that lenders acting as authorised dealers in the rupee must ensure their open positions in the onshore currency market do not exceed $100 million at the end of each trading day. Previously, they were permitted to set so-called open position limits to within 25% of their capital.
Read more: How RBI’s new rules will change digital payments from April 1
The bets are mainly in the offshore non-deliverable forwards market, with a smaller fraction in the futures market, and the transactions involved purchasing dollars onshore and selling them overseas, the people said.
The RBI didn’t immediately respond to an email seeking comment outside of regular business hours.
Onshore dollar buying has exerted strain on the rupee, which fell to a new low on Friday, weakening past the closely watched 94-per-dollar mark for the first time. The currency has dropped more than 4% since the war in Iran began in late February and is Asia’s worst performer this year as elevated oil prices compounded fears of inflation and a wider trade deficit for the import-driven nation.
Lenders will be forced to sell dollars in the onshore market to unwind bets to comply with the rule, potentially sparking sharp gains in the rupee when trading resumes on Monday, the people said. That will in turn hurt the banks that have built short positions.
Also read: RBI mulling e-cheques, widening regulatory ambit to include digital payment cos
After the central bank’s move, CR Forex Advisors now estimates the rupee to be in a range of 92.50-92.80 per dollar in the near term. That compares with Friday’s close of 94.8150.
Monday is the last trading day of the current Indian fiscal year, as March 31 is a holiday.
In talks on Saturday, March 28, banks sought to delay an April 10 deadline for them to comply with the new rules that would require a significant amount of positions to be closed, the people said, asking not to be named discussing private matters. They said unwinding at such a scale would trigger large losses on their books and also urged that the new rules apply only to new bets, the people said.
The Reserve Bank of India said after markets closed on Friday that lenders acting as authorised dealers in the rupee must ensure their open positions in the onshore currency market do not exceed $100 million at the end of each trading day. Previously, they were permitted to set so-called open position limits to within 25% of their capital.
Read more: How RBI’s new rules will change digital payments from April 1
The bets are mainly in the offshore non-deliverable forwards market, with a smaller fraction in the futures market, and the transactions involved purchasing dollars onshore and selling them overseas, the people said.
The RBI didn’t immediately respond to an email seeking comment outside of regular business hours.
Onshore dollar buying has exerted strain on the rupee, which fell to a new low on Friday, weakening past the closely watched 94-per-dollar mark for the first time. The currency has dropped more than 4% since the war in Iran began in late February and is Asia’s worst performer this year as elevated oil prices compounded fears of inflation and a wider trade deficit for the import-driven nation.
Lenders will be forced to sell dollars in the onshore market to unwind bets to comply with the rule, potentially sparking sharp gains in the rupee when trading resumes on Monday, the people said. That will in turn hurt the banks that have built short positions.
Also read: RBI mulling e-cheques, widening regulatory ambit to include digital payment cos
After the central bank’s move, CR Forex Advisors now estimates the rupee to be in a range of 92.50-92.80 per dollar in the near term. That compares with Friday’s close of 94.8150.
Monday is the last trading day of the current Indian fiscal year, as March 31 is a holiday.
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