RBI restricts forex derivatives and mandates cash reserves to stabilize the rupee
What happened
The Reserve Bank of India issued circulars restricting the rebooking of cancelled INR derivative contracts. The threshold for hedging without underlying exposure was reduced from USD 100 million to USD 5 million. Additionally, Authorised Dealers must now maintain a cash Foreign Exchange Risk Reserve with the RBI equal to 20% of the notional value for contracts exceeding USD 2 million.
Why it matters
These regulations force tighter risk management on market participants by curbing speculative positioning. By increasing cash holding requirements and lowering the threshold for verifying underlying exposures, the RBI is directly intervening to reduce volatility and strengthen the rupee.
Bigger picture
The mandate reflects a proactive regulatory shift toward stricter oversight of India’s foreign exchange market. The introduction of specific liquidity reserves suggests the central bank is prioritizing structural market stability over trading volume amid ongoing currency pressure.
Watch next
Monitor implementation by Authorised Dealers and Recognised Stock Exchanges regarding the new verification requirements and the ongoing maintenance of cash reserves.