USD/INR: RBI clampdown reshapes derivatives market – Commerzbank

Commerzbank analysts Dr. Henry Hao and Moses Lim note that the Reserve Bank of India (RBI) has banned authorised dealers from offering non-deliverable INR derivative contracts to residents and non-residents, and from transacting FX derivatives with related parties. The move aims to curb speculative pressure on the Rupee (INR). Offshore 1‑month USD/INR NDF fell 0.6% to 93.59 after the directive, easing near-term intervention needs.

Rupee regulation tightens as RBI targets speculation

"The Reserve Bank of India (RBI) banned authorised dealers from offering non-deliverable derivative contracts to both residents and non-residents yesterday. Dealers are also prohibited from offering any FX derivatives contracts with related parties. However, banks may offer deliverable forwards to clients for hedging purposes, as long as these banks refrain from offsetting the transaction through an offshore position."

"RBI's recent tightening of regulations on INR derivatives aims to curb speculative trades that have weakened the INR. In the near-term, this could alleviate pressure for the RBI to intervene to stablise the INR."

"However, it is unlikely to stem the currency’s decline in the medium-term as importer dollar demand is expected to remain firm amid elevated global commodity prices. RBI have drawn USD30bn from the FX reserve in the first three weeks of March to defend the INR."

"In FX, the onshore market was closed on Tuesday and Wednesday. The offshore 1-month USD-INR NDF fell 0.6% to 93.59 yesterday. It was stable at market open but sharply fell overnight following the RBI’s directive."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)