RBI cracks down on rupee speculation as currency falls close to 97 against dollar

The Reserve Bank of India (RBI) has implemented a series of measures to curb excessive speculation in the rupee derivatives market. As the currency slides towards the 97 mark against the dollar, and crude oil surpasses $100 per barrel, the central bank aims to enhance market discipline and transparency in foreign exchange transactions.

Key changes include restrictions on rebooking cancelled contracts, lowered thresholds for derivative transactions without underlying exposure, and a new Foreign Exchange Risk Reserve (FERR). The threshold for undertaking foreign exchange derivative transactions without establishing underlying exposure has been reduced from $100 million to $5 million, a 95% decrease.

Additionally, banks must prevent repeated cancellation and rebooking of rupee-involving derivative contracts and maintain a 20% Foreign Exchange Risk Reserve for certain transactions. These changes impose stricter controls and heightened scrutiny on banks and corporations managing foreign exchange positions.