The Reserve Bank of India (RBI) will actively engage with banks and other stakeholders in bringing out necessary regulatory changes to promote liquidity in the foreign exchange market.
Addressing the 5th Annual Forex Assembly, RBI deputy governor HR Khan said the central bank could consider further measures for extending access to over-the-counter (OTC) currency derivatives to international stakeholders over the medium term.
?It is a well-recognised fact that option contracts provide a lot of flexibility to end-users to hedge their currency exposure in cost-effective ways,? said Khan.
He said the banking industry must act in unison to bring about awareness among the corporates about the need to adopt and implement a well-deliberated hedging policy, so that the Indian forex market is spared of regular episodes of extreme volatility.
Khan said the RBI would calibrate further liberalisation of foreign portfolio investor (FPI) investment limits in G-Sec with the overall objective of prudential management of the capital account, in general, and mitigating the impact of speculative carry-forward trade, in particular.
He also touched upon the issue of FIMMDA, FEDAI and IBA trying to form an independent company jointly. He exhorted the three institutions to expedite the process so that the new company could take appropriate steps to implement the recommendations of the Vijay Baskar Committee and become compliant with the IOSCO Principles on Financial Benchmarks already endorsed by the FSB working on the mandate from G-20.
Talking of the need to have more FX trading platforms, Khan said: ?FEDAI and market participants may work together to promote competing trading platforms in the overall interest of market stability and efficiency and reducing the cost of trading.?
