The Reserve Bank of India has taken fresh steps to control speculation in the currency market as the Indian rupee continues to weaken.
In its latest move, the RBI has restricted banks from offering certain offshore forex contracts, aiming to reduce risky trading practices.
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What Has RBI Banned?
The RBI has stopped banks from offering Non-Deliverable Forward (NDF) contracts in the rupee.
This means:
Both companies and investors cannot take NDF positions anymore
These contracts were often used for speculation on currency movements
However, banks can still offer regular (deliverable) forex contracts, but only for genuine hedging needs.
Why Is RBI Taking This Step?
The main reason is the falling rupee.
The rupee has dropped over 4% in just one month
It has fallen nearly 11% this financial year
Recently, it hit a record low of 94.83 per dollar
Global tensions, especially the West Asia conflict, have increased pressure on the currency.
The RBI wants to reduce speculation and stabilise the market.
More Restrictions to Stop Market Manipulation
The RBI has also introduced stricter rules:
Banks cannot rebook forex contracts once they are cancelled
This stops traders from timing the market repeatedly
Banks are not allowed to trade with related parties to avoid conflicts of interest
Banks can now also ask for documents and details to ensure rules are being followed properly.
Earlier Measures Also in Place
This move comes after another recent restriction by the RBI.
Banks were earlier told to limit their net open position (NOP) in the currency market to $100 million per day.
This rule aims to reduce excessive risk-taking by banks.
Final Takeaway
The RBI is clearly tightening control over forex markets.
By limiting risky trades and closing loopholes, the central bank wants to ensure that currency derivatives are used only for protection (hedging), not speculation.
For now, these steps signal a strong effort to stabilise the rupee and reduce market volatility.