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FMC suspends trading in 4 commodities

BS Reporter  |  Mumbai 

Amid rising pressure on inflation, the Forward Markets Commission today suspended futures trading in four commodities "" potato, soya oil, chana and rubber "" for four months.

The move followed instructions from the government that summoned FMC Chairman BC Khatua and member Kewal Ram, who was also part of the expert committee headed by Abhijit Sen. Due to differences within the committee, it did not say if futures trading should be banned or not.

The panel merely said it could not establish a link between the futures and the spot rates.

Despite that, the FMC this evening decided to suspend trading in the four commodities till September 6. "The decision has been taken as a measure of abundant caution considering the concerns of the government about the inflationary expectations," FMC member Rajeev Agarwal said.

An official said all outstanding trades would be settled at today's closing price. "The order may be revoked after September 6 unless the government thinks otherwise," he added.

Despite several attempts, commodity exchanges could not be contacted for comment.

Inflation based on the wholesale price index (WPI) touched 7.57 per cent for the week ended April 19, the highest in over three years. While a part of the spurt is on account of the rise in global commodity prices, political parties have also blamed futures trading for the inflationary spike.

With Assembly elections in key states due to take place later this year, the Centre has stepped in slashing import duties on key commodities like steel, cement and edible oil. Besides, it has imposed curbs on export of products like rice, cement and steel.

Besides, the Reserve Bank of India (RBI) has announced a 75 basis point hike in the cash reserve ratio. The suspension is the latest in the series of inflation combating measures.

Even last year, the government had banned futures trading in wheat and pulses like urad and tur after allegations that there was widespread speculation which had seen spot prices rise.

A section within the government is also attributing the recent spurt in futures prices for commodities like chana to FMC, saying that the regulator dropped guard recently.

They cited the reduction in margin as also a rise in open interest limits in February to argue their case. An official at the regulatory body, however, denied it and said that FMC was always in control of the situation.

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First Published: Thu, May 08 2008. 00:00 IST