In practical terms, businesses taking larger positions will have to establish the foreign currency obligation or receipt being hedged. The revised threshold is a documentation requirement rather than an overall $5 million ceiling on hedging.
A further measure introduces a Foreign Exchange Risk Reserve, or FERR. For eligible rupee-linked derivative contracts with a notional value exceeding $2 million, authorised dealers must maintain cash with RBI equal to 20 per cent of the transaction’s rupee-equivalent notional amount.
The requirement applies to contracts hedging current account exposures in which the user purchases foreign currency against the rupee, including qualifying import-payment hedges.
Because the reserve ties up dealers’ cash, it could increase the cost of providing these hedges and potentially affect pricing for customers. The obligation rests with authorised dealers; it is not described as a direct 20 per cent levy on importers.
RBI said the regulatory changes were intended to strengthen market discipline, improve risk management and maintain an orderly and transparent foreign exchange market.
Taken together, the measures address both immediate dollar demand and the conditions under which currency hedges are booked. They could help contain market pressure, although the rupee’s direction will continue to depend on factors such as oil prices, capital flows and global financial conditions.
With IANS inputs
