The Reserve Bank of India (RBI) on Monday eased certain restrictions on rupee-linked foreign exchange derivative transactions, rolling back earlier curbs that had been introduced to stabilise currency market volatility. The central bank has withdrawn instructions that had prevented authorised dealers from offering non-deliverable forward (NDF) contracts in select rupee derivative trades to both resident and non-resident users. It has also removed restrictions that barred users from rebooking foreign exchange derivative contracts that were cancelled after April 1, allowing greater flexibility in managing hedging positions.

Under the revised framework, banks authorised to deal in foreign exchange can now resume a broader set of rupee derivative transactions, although certain safeguards remain in place. The RBI clarified that authorised dealers are still restricted from entering into foreign exchange derivative contracts involving the rupee with related parties, except in cases of cancellation or rollover of existing contracts, or back-to-back transactions with non-resident clients who are not related parties.

The earlier restrictions had been introduced earlier this month following a review of evolving market conditions. At that time, the RBI had barred authorised dealers from offering non-deliverable rupee derivatives, a move aimed at preventing excessive speculation and supporting the domestic currency, which had been under pressure in global markets.

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However, deliverable foreign exchange derivative contracts were still permitted for users, provided they were used strictly for hedging purposes and not for creating offsetting non-deliverable positions. The RBI had also imposed limits on rebooking cancelled contracts to curb repeated speculative exposure.

The central bank’s earlier measures came after the Indian rupee breached the psychologically important level of 95 against the US dollar, reflecting heightened volatility in currency markets. The rupee has since shown fluctuations, influenced by global risk sentiment, including developments in West Asia and movements in crude oil prices.

On Monday, the rupee ended weaker by 19 paise at 93.10 (provisional) against the US dollar, as geopolitical tensions and steady crude oil prices supported demand for the dollar. Market participants say the latest RBI move signals a calibrated shift toward easing tight controls while still maintaining oversight to manage volatility in the foreign exchange market.

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