MUMBAI, April 20 (Reuters) - The Reserve Bank of India on Monday rolled back some restrictions on rupee derivative trades that were put in place earlier this month to arrest the currency's slide to record lows.
The central bank on April 1 barred banks from offering non-deliverable forwards to clients and also stopped companies from rebooking forward contracts as part of its clamp-down on arbitrage trades that were exacerbating volatility in the rupee's exchange rate.
The RBI also stopped banks from entering into FX derivative contracts involving the rupee with their related parties.
On Monday, the RBI withdrew the first two curbs, and tweaked restrictions on related party deals to allow cancellation and rollover of existing contracts and transactions undertaken with a non-resident entity on a "back-to-back basis".
The relaxations mark a partial rollback of crisis-era measures that the RBI tapped to arrest the rupee's slide to a record low past 95 to the dollar in late March.
"The instructions issued on April 1 were meant to be temporary in nature. They have had the desired impact and hence are no longer needed," a person familiar with the matter said, declining to be identified as they aren't authorized to speak to the media.
On March 27, the RBI had targeted arbitrage trades by capping banks' net open rupee positions. However, the measure failed to offer relief to the currency as banks exited the positions by offering them to corporates and related parties, Reuters had reported.
The second round of restrictions —rolled out on April 1—helped spark a bounce of about 2% in the South Asian currency, which has since steadied in a 92.50-93.50 range.
The $100 million limit on banks' net open rupee positions in the onshore market remains in place.
India's curbs on banks' foreign‑exchange positions will not remain in place indefinitely, central bank chief Sanjay Malhotra said earlier in the month.
The partial relaxation follows scrutiny of corporate and related-party transactions amid concerns that they skirted regulations and impeded efforts to shore up the currency.
"The rollback suggests the RBI wanted to restore normal hedging activity while continuing to curb speculative trades which made the currency vulnerable," an FX trader with a private bank said.
Reporting by Jaspreet Kalra; Editing by Janane Venkatraman and Mrigank Dhaniwala
Source: Reuters