RBI Governor States Currency Market Curbs are Temporary
Governor Sanjay Malhotra stated that recent restrictions on bank position limits aim to curb rupee volatility. He confirmed these measures are not permanent.
The Reserve Bank of India's recent restrictions on the foreign exchange position limits of lenders and the suspension of non-deliverable forwards (NDFs) are temporary measures, according to Governor Sanjay Malhotra. Speaking at a post-monetary policy briefing on Wednesday, Malhotra clarified that these actions were taken to manage the volatility of the Indian Rupee / US Dollar and are not intended to be permanent fixtures of the regulatory landscape in India.
Malhotra noted that the central bank had identified a significant increase in market volatility over recent weeks. This trend was attributed to banks building up positions, particularly through arbitrage strategies that bridge the onshore deliverable market and the offshore NDF market. While the central bank typically encourages these linkages to facilitate efficient price discovery, the recent volume of such trades was deemed excessive.
\"In normal conditions, these linkages play an important role in efficient price discovery, which is why the RBI has been trying to broaden access to the NDF market.\"
The Governor explained that when market positions reach levels that no longer support healthy price discovery, the authorities must intervene. He stressed that these measures were a direct reaction to specific, short-term market movements and do not represent a change in the central bank’s broader strategy. The Reserve Bank of India remains dedicated to the internationalization of the currency and the continued development of financial markets.
\"So obviously these measures are not going to remain in place forever.\"
