The Reserve Bank of India (RBI) on Tuesday eased various restrictions on exporters’ exchange earnings and forward contract transactions. These were imposed earlier to curb volatility in the rupee. RBI said the new step was to provide operational flexibility to exporters and banks.
The central bank restored the facility of allowing full credit for foreign exchange earning to Exchange Earners Foreign Currency (EEFC) Accounts. However, the relaxation is subject to the condition that accruals during a month should be converted into rupees on or before the last day of the succeeding month. Exporters can adjust for balances for forward commitments. In May, RBI had told exporters to convert half their dollar funds in EEFC accounts into rupees within a fortnight.
Exporters have also been allowed to cancel and rebook forward contracts to the extent of 25 per cent of the total contracts booked for hedging their exposure. RBI had barred exporters from cancelling and rebooking forward contracts in December 2011, to curb speculative trading in the foreign exchange market. (Click for table)
|TIMELINE OF RBI ACTIONS TAKEN TO SUPPORT RUPEE
|May 21, 2012
- Banks' trading positions in currency futures reduced
- Counter-positions between exchanges and Over The Counter market restricted
|May 10, 2012
- Exporters told to liquidate 50% of their dollars within two weeks
- Allows intra-day trading at five times the net overnight open position limit of the bank
|December 15, 2011
- Restricts rebooking of cancelled forwards contracts to curb speculative trading
- Cuts Net Overnight Open Position Limit for banks
In December 2011, RBI had cut the net overnight open position limits (NOOPLs) of authorised dealer banks. RBI on Tuesday said these banks need not include positions taken by their branches abroad and the delta of the options position (a delta measures the sensitivity of the value of an option to changes in the price of the underlying stock) for computation of net overnight open positions that involve the rupee as one of the currencies. However, these positions will continue to be part of the total NOOPLs for calculation of total foreign currency exposure.
Since August 2011, the rupee has been witnessing high volatility and has depreciated by a little over 25 per cent. After registering a record low of 57.13 against the dollar last month, it has been trading in a 55-57 range. “The current stability would have prompted RBI to roll back restrictions to some extent,” said a senior official from a public sector bank. Market participants had requested such a roll-back recently.