Governor Sanjay Malhotra says the RBI’s 20% reserve requirement on some large rupee-linked derivatives is intended to curb speculation and keep markets orderly, while leaving investment flows and repatriation unrestricted.
RBI Governor Sanjay Malhotra has sought to calm concerns that the central bank’s latest foreign exchange rules amount to capital controls, saying the move is aimed at curbing speculation and keeping currency trading orderly rather than limiting cross-border investment. In an interview with Moneycontrol, he said the Reserve Bank of India was focused on preventing disorderly moves in the rupee, not on closing off channels for overseas money to enter or leave the country.
The clarification came after the RBI tightened rules on foreign exchange derivatives on October 10, requiring authorised dealers to maintain a cash reserve with the central bank equal to 20% of the rupee equivalent of certain transactions with a notional value above $2 million. According to the RBI’s circular, the requirement applies to derivative contracts linked to the rupee and meant to hedge current account exposures, not to capital account transactions.
Malhotra said foreign portfolio investors can continue to buy Indian shares, debt and corporate bonds, and can also repatriate funds without restriction. He added that external commercial borrowings remain outside the scope of the new requirement, underscoring that the measures are designed to affect speculative trading in the foreign exchange market rather than foreign investment flows.
He also signalled that the central bank is prepared to do more if conditions warrant it. Reporting by The Economic Times said Malhotra left open the possibility of additional steps to limit speculation, while also maintaining that the RBI’s broader aim is to support genuine hedging needs and preserve external stability. Business Standard reported earlier this year that he has described similar forex curbs as temporary responses to market conditions, not a structural shift in policy, and has said the RBI does not target any fixed level for the rupee.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
