| RBI eases norms on forex earnings, forwards |
MUMBAI The Reserve Bank of India (RBI) said on Tuesday it will allow companies to keep all of their foreign exchange earnings while also easing restrictions on forwards contracts, reversing two regulations passed during periods of intense rupee volatility.
The moves come after the rupee has recovered after hitting a record low against the dollar in late June, and help address complaints from some companies that RBI regulations were restricting their foreign exchange risk management.
Traders said the move was ultimately positive for the rupee given the added flexibility provided, especially to exporters, though in the short-term it could reduce dollar supply in the market. “This move can bring some liquidity to the market and is good for exporters,” said Hari Chandramgathan, a forex dealer with Federal Bank.
The RBI will reverse its May directive mandating exporters to convert 50 per cent of their foreign exchange holdings in their accounts into rupees, which had been intended to stem falls in the local currency during that period.
The exporters and other companies affected by that directive will now be allowed to retain all of their foreign currencies in their Exchange Earners Foreign Currency (EEFC) accounts.
The central bank also said it will allow exporters to cancel and rebook forward contracts comprising up to 25 per cent of their total hedged exposure. The rules ease a set of directives in December when the RBI banned foreign institutional investors and domestic firms from re-booking forward contracts after cancelling them. Although the move had been intended to reduce volatility in FX markets during another bout of instability for the rupee, the regulations restricted exporters’ ability to manage risk, making it difficult to adjust forward contracts.
Reuters
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