The Reserve Bank of India recently introduced foreign exchange policies that bolstered the Indian Rupee spot rate while simultaneously increasing hedging costs and reducing liquidity in derivatives markets, according to FX Street.
These measures included restrictions on non-resident access to non-deliverable forwards (NDFs), which led to a sharp decline in offshore INR forward premiums. FX Street reported that these steps curtailed speculative demand for the US Dollar, aiding the INR’s rally. However, the tightening came with wider bid-ask spreads and less liquid onshore forward contracts.
For Japanese investors and firms engaged in FX trading and hedging, these developments highlight evolving risks and costs in Indian currency markets, emphasizing the need to adjust strategies amid changing RBI regulations.