"With a view to improving the depth and liquidity in the domestic foreign exchange market, it has been decided to allow foreign portfolio investors to participate in the domestic exchange-traded currency derivatives market to the extent of their underlying exposures plus an additional USD 10 million," the Reserve Bank of India said in its Second Bi-Monthly Monetary Policy Statement.
"It has also been decided to allow domestic entities similar access to the exchange-traded currency derivatives market," it said, adding that detailed operative guidelines would be issued soon.
The central bank had in July last year imposed curbs such as doubling of margin requirement and a ceiling on position limits on exchange-traded currency derivatives.
The restrictions were imposed to check speculation in the foreign-exchange market. The rupee touched a record low of 68.85 on August 28.
The RBI had doubled the margins, or initial money deposited, while trading derivatives in this segment to check the rupee's slide.
In its April monetary policy statement, the RBI had said foreign investors would soon be allowed to hedge their forex exposure in the exchange-traded currency derivatives market.