The position limit hike by Reserve Bank of India to $100 million across currency pairs is likely to boost the currency futures trading in India, experts say. On Wednesday, RBI raised the position limit for trading in currency derivatives on stock exchanges. The raise was announced both for resident and non resident Indians. The earlier limit was $15 million per exchange for dollar-rupee pair.” This is a step in the right direction by the RBI. However, a lot needs to be done still in this regard. But, for the time being, the decision will help boost the currency futures trading market and also assist the traders in terms of hedging,” says Aasif Iqbal of Escorts Securities.
With this raise, Indian exchanges will receive more leverage in comparison to the destinations abroad such as DGCX and the SGX which have less statutory costs for trading, due to tax arbitrage. Experts expect that this move will help in increasing luring business away from the regional financial hubs such as Singapore. The traders can also rejoice over the fact that they can now take positions in the exchange traded currency derivatives without any underlying trade up to $15 million per exchange for the dollar-rupee pair. The limit of $5 million applies to other currency pairs including euro, yen and sterling with the rupee. This means that the total limit is pegged at $60 million collectively across three exchanges — NSE, BSE and MCX.
Five months ago, on September 8, India’s Forex Reserves touch the $400 billion mark for the first time, then slipped below the mark; and then, once, again, touched in the mark after five weeks. Since then, the Forex Reserves have been growing in size, hitting a new lifetime high continuously for the last four weeks — sometimes by $500 million and sometimes by $3 billion. In the week to January 26, the foreign exchange reserves rose sharply by $3 billion to $417.789 billion.
The Reserve Bank of India (RBI) on Wednesday consolidated the positional limits in exchange traded currency derivatives (ETCD) to a single limit of $100 million per user across all exchanges. The central bank stated that currently, users can take positions in ETCD, without having to establish proof of underlying exposure, upto $15 million per exchange for USD-INR and $5 million per exchange for other currency pairs involving the rupee.