BANKS, FIRMS MAY GET MORE FLEXIBILITY IN FOREX HEDGING

The Reserve Bank of India (RBI) will carry out a “comprehensive review” of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, along with the government, to allow greater flexibility in derivatives transactions and currency hedging.

The RBI announcement on Wednesday to re-evaluate the regulation, also known as FEMA 25, comes amid a volatile rupee fuelled by fears of a global trade and currency war.

“It is now proposed to undertake a comprehensive review of FEMA 25, in consultation with the Government of India, to, inter alia, reduce the administrative requirements for undertaking derivative transactions, allow dynamic hedging, and allow Indian multinationals to hedge the currency risks of their global subsidiaries from India,” RBI said in a statement.

The draft circular on revised guidelines will be issued by the central bank by the end of September for public comments.

The rupee depreciated to a record low against the dollar on 20 July, dropping to as low as ₹69.12 to a dollar. It closed at ₹68.43 on Wednesday.

“It (review of regulations) is meant to make the current set of regulations more principle-based in order to incentivize hedging transactions and disincentivizing transactions, which may look like hedging transactions but are not,” Viral Acharya, RBI’s deputy governor, said at a press meet to discuss the monetary policy.