Rbi Warns On Forex Speculation

The Reserve Bank of India (RBI) has warned corporates against speculating in the foreign exchange market, a move seen as a sign of increasing nervousness in the apex bank about the volatility in the markets.

In a series of three circulars, the RBI has warned corporates against improper use of import credit, taking intra-day positions in the market, and opting for inappropriate hedging instruments.

Despite the warnings the rupee ended slightly weaker against the dollar yesterday The rupee closed at 43.12-15, slightly weaker than Thursday's close of 43.08-12. Forward premiums however eased yesterday.

"The undertone is that we have asked banks to ensure that corporates do not speculate or take advantage of liberalisation," an RBI official said. Sources point out that the move is aimed at restoring orderly conditions in the market and not targeting the rupee value.

 

The market has interpreted the measure as a signal of the

RBI's concern over developments in the foreign exchange market, and the rupee responded negatively by dropping a few paise to close at 43.12-15. It ranged between 43.00 and 43.08 before the directive reached banks.

Demand picked up slightly late noon following the central bank directives. The forward dollar premiums eased yesterday as buying pressure lightened, dealers said.

Premiums closed at 6.85 percent for one month (7.96 on Thursday), 8.02 percent for six months, (8.46), and 9.03 percent for 12 months (9.20). The RBI directed banks to ensure that foreign exchange credit for imports was not utilised for anticipated imports beyond a reasonable period, implying that documentary evidence was required, bankers said. The aim is to take the created by the intense dollar buying.

It reiterated its stand on not allowing re-bookings of cancelled forward contracts in case of non-trade trasactions. This move prevents volatility in the forex markets.

It warned corporates against speculating by picking up hedging products inappropriate with the nature of their business, for instance, an exporter buying forward dollars with a view to sell at a higher premium. It also said that corporates cannot take intra-day positions to speculate on the currency and warned of necessary action if called for.