Mumbai, April 20 (NationPress) On Monday, the Reserve Bank of India (RBI) revealed a partial reversal of the restrictions it had implemented earlier this month concerning specific rupee derivative transactions. This move indicates a transition towards normalizing market activities following emergency measures aimed at stabilizing the currency.

The central bank had established a range of controls on April 1, designed to mitigate heightened volatility in the rupee, which had plummeted to unprecedented lows, surpassing the 95 mark in late March.

These controls included prohibiting banks from providing non-deliverable forwards (NDFs) to clients and limiting the rebooking of cancelled forward contracts, with the intention of reducing arbitrage trades that were exerting pressure on the currency.

In this latest action, the RBI has completely lifted both restrictions. Additionally, it has relaxed rules pertaining to foreign exchange derivative contracts involving related parties, permitting the cancellation and rollover of existing contracts and allowing transactions with non-resident entities on a back-to-back basis.

This relaxation signifies a measured withdrawal of crisis-era controls, even as the central bank remains vigilant regarding speculative activities.

The limit on banks' net open rupee positions in the onshore market remains at $100 million.

The initial restrictions aimed to address arbitrage-driven volatility by capping banks' positions.

However, these measures had a less-than-expected impact, as banks reportedly shifted positions to corporates and related entities, diminishing the intended effects.

“After a review, it has now been decided to revoke the instructions issued via A.P. (DIR Series) Circular No. 03 dated April 01,” stated the central bank.

“Moreover, it has been resolved that authorized dealers shall not engage in any foreign exchange derivative contracts involving INR with their related parties except for the following: cancellation and rollover of existing contracts and transactions conducted with non-related non-resident users on a back-to-back basis in accordance with the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to time,” it further explained.

A second set of restrictions introduced in April contributed to a nearly 2 percent recovery in the rupee, which has since traded within a relatively stable range of 92.50 to 93.50 in recent sessions.

Market observers interpret this latest rollback as an effort by the central bank to find a balance between reinstating normal hedging activities and preventing excessive speculative trading that could destabilize the currency.

This decision also comes amid heightened scrutiny of corporate and related-party transactions, with concerns that some deals were being utilized to circumvent regulatory safeguards.