India’s Central Bank Slams Door on Corporate Hedging as Rupee Plummets
India's RBI tightens hedging rules and limits forex bets as rupee hits record lows against the dollar.
POLICY WIRE — Mumbai, India — The Reserve Bank of India has implemented new restrictions on corporate hedging to counter a surge in demand for foreign currency protection as the rupee continues its steep decline.
The central bank now requires forex dealers to maintain a 20% foreign exchange risk reserve on derivative contracts used to hedge against rupee weakness. This move is expected to increase costs for companies seeking to protect themselves from further depreciation.
RBI officials have also capped banks’ positions in the onshore currency market at $100 million, aiming to reduce speculative activity that has exacerbated pressure on the rupee. The currency has lost over 7% this year and recently hit an all-time low of 94.70 against the U.S. dollar, driven by rising oil prices and geopolitical tensions.
Reporting by Policy-Wire (PW)
