RBI widens ambit of forex risk reserve requirement, tightens NDF rules
BusinessLine 1 hr ago·13 Oct 2026, 4:13 am
The Reserve Bank of India has tightened foreign exchange regulations to curb speculative trading and strengthen the rupee. The new rules require banks to set aside a portion of their capital as a risk reserve for clients using derivatives to hedge current-account exposures. Additionally, the central bank has restricted the use of Non-Deliverable Forwards (NDFs), limiting them to hedging genuine trade and investment risks rather than pure speculative bets.
This move is significant for investors as it reduces the liquidity available in the forex market and increases the cost of hedging for corporates. By discouraging short-term speculative positions, the RBI aims to reduce volatility in the currency market. This could lead to a more stable rupee environment, which is generally positive for importers and exporters, though it may also make hedging more expensive in the short term.
Investors should watch for the RBI's future communication on the implementation timeline and any potential impact on the liquidity of the NDF market. While the rules are aimed at stabilizing the currency, they may temporarily increase volatility as market participants adjust to the new compliance requirements.
Excerpt from BusinessLine
The Reserve Bank of India on Monday widened the scope of a recently introduced cash deposit requirement for FX hedges to cover all such transactions undertaken by authorised banks, including those hedging their own assets and liabilities. The move is the latest in a slew of measures announced by the central bank…Read the original at BusinessLine
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