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RBI Says Okay to Slightly More Speculative Trading on the Rupee


RBI has increased limits on trading on the exchanges of currency derivatives.

Earlier, total limits on forex derivatives (of all currency pairs combined) was a ludicrously low $10 million. This was for positions “without underlying exposure” – or, put another way, for speculative trading.

Now both domestic residents and Foreign Portfolio Investors can:

  • Take positions upto $15 million each in the USD-INR pair, per exchange
  • Take a total position of $5 million per exchange in the remaining pairs (EUR, JPY and GBP to INR)
  • Importers can hedge upto 100% of their exposure at exchanges (currently only 50%)

Additionally, they have eased documentation needs – instead of getting a statutory auditor statement that these importer restrictions have been met, the new deal is only to have a top executive sign off on a statement instead.

It’s incredible that we have such insane levels of documentation and regulatory nitpicking for something as simple as a dollar-rupee trade. It’s not apparent why these regulations exist other than our fear that speculation will result in everybody dying, which almost never happens. Some regulation is good, and some regulation is just bad, or outdated.

This regulation, while now reduces RBI influence, is too slow in doing so. $15 million too is too little, especially for Foreign investors. ($15 million exposure is equivalent to a margin of about $700,0000 which, even if you take 3 positions and $2 million margins, is too little to be of any value to most speculative funds)

We should just free the rupee. (Note: Russia freed the Ruble in 2014, despite their currency crisis. China will free the Yuan Renminbi this year. RBI, your turn.)


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