The Reserve Bank of India has partially reversed a recent clampdown on rupee derivatives trading, but the episode has unnerved domestic banks by exposing the central bank’s willingness to impose strict limits on lenders’ foreign exchange activity during periods of currency stress.
The central bank had moved earlier in April to curb speculative trading against the rupee, imposing a hard cap on banks’ net open rupee positions, restricting some offshore non-deliverable forward activity and limiting the rebooking of cancelled forward contracts. Those measures forced lenders to unwind large arbitrage trades between onshore and offshore markets ahead of an April 10 deadline.
