-- Posted Monday, 19 December 2011 | | Disqus
The Reserve bank of India (RBI) with immediate effect has changed the currency hedging norms for exporters and importers in India vide circular number
A.P. (DIR Series) Circular No. 58 dated 15th December 2011
The previous act
Keeping in view the developments in the foreign exchange market, it has been decided to implement the following measures with immediate effect until further review.
I. Under contracted exposures, forward contracts, involving the Rupee as one of the currencies, booked by residents to hedge current account transactions, regardless of the tenor, and to hedge capital account transactions, falling due within one year, were allowed to be cancelled and rebooked.
I. It has now been decided to withdraw the above facility. Forward contracts booked by residents irrespective of the type and tenor of the underlying exposure, once cancelled, cannot be rebooked.
ii. Under probable exposures based on past performance residents were allowed to hedge currency risk on the basis of a declaration of an exposure and based on past performance up to the average of the previous three financial years’ (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher. Further, contracts booked in excess of 75 per cent of the eligible limit were to be on deliverable basis and could not be cancelled.
The change
It has now been decided that
a. For importers availing of the above past performance facility, the facility stands reduced to 25 percent of the limit as computed above, i.e., 25 percent of the average of the previous three financial years’ (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher. In case of importers who have already utilized in excess of the revised / reduced limit, no further bookings may be allowed under this facility.
b. All forward contracts booked under this facility by both exporters and importers hence forth will be on fully deliverable basis. In case of cancellations, exchange gain, if any, should not be passed on to the customer.
All cash/tom/spot transactions by the Authorized Dealers on behalf of clients will be undertaken for actual remittances / delivery only and cannot be cancelled / cash settled.
iv. Foreign Institutional Investors (FIIs) are currently allowed to hedge currency risk on the market value of entire investment in equity and/or debt in India as on a particular date. The contracts once cancelled cannot be rebooked except to the extent of 10 per cent of the market value of the portfolio as at the beginning of the financial year. The forward contracts may, however, be rolled over on or before maturity.
It has now been decided that henceforth forward contracts booked by the FIIs, once cancelled, cannot be rebooked. The forward contracts may, however, be rolled over on or before maturity.
The Board of Directors of Authorized Dealers were allowed to fix suitable limits for various Treasury functions with net overnight open exchange position and aggregate gap limits required to be approved by the Reserve Bank.
It has now been decided that
a. Net Overnight Open Position Limit (NOOPL) of Authorized Dealers would be reduced across the board. Revised limits in respect of individual banks are being advised to the Authorized Dealers separately.
b. Intra-day open position / daylight limit of Authorized Dealers should not exceed the existing NOOPL approved by the Reserve Bank.
c. The above arrangement would be reviewed on an ongoing basis keeping in view the evolving market conditions.
OUR VIEW
The RBI seems to have woken up a bit late as it was just huge speculation that was driving up the rupee against the major currencies. The move is in the right direction but it will not reduce speculation in the rupee. Only volumes from Inter-bank market will shift to currency futures exchange and in non deliverable forward market (NDF market). Exporters and importers can hedge their receivables in the various currency exchanges such as NSE, MCX-SX etc.
Only currency exchange volumes will rise. No doubt inter-bank prices and NDF prices dictates rupee’s trend in currency exchange, exporters and importers can still trade/hedge in these exchanges. Only margin calls need to be given. The move by the RBI will reduce the pace of weakness. The good thing is rupee prices shall from now on reflect Indian economic fundamentals. The problem with analyzing emerging market currencies such as the Indian rupee is that there is an uncertainty as to when and how central bank intervention will come. In 2011 there was minimal RBI intervention in the rupee. We never expected the rupee to weaken to 54.20 against the US dollar in July 2011 on expectation that RBI will prevent weakness over 52.00. The best way to analyze the rupee in 2012 is to ignore expectations of RBI intervention and to use standard analytical tools as we use for developed market currencies.
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared By Chintan Karnani. Website www.insigniaconsultants.in
-- Posted Monday, 19 December 2011 | Digg This Article
| Source: GoldSeek.com
