Mumbai: The Reserve Bank on Friday allowed banks to participate in offshore non-deliverable forward (NDF) rupee markets with a view to contain volatility in the domestic currency.
It can be noted that the ongoing financial market volatilities triggered by coronavirus outbreak dragged the rupee to touch lifetime lows and also breach the 75-mark against the US dollar before gaining some lost ground in the last few days.
In the past, experts have expressed concern about the NDF market - till now inaccessible to Indian banks - as among the measures which drive the rupee movement.
"...the time is apposite to remove segmentation between the onshore and offshore markets and improve the efficiency of price discovery," RBI Governor Shaktikanta Das said.
The measure is aimed at improving depth and price discovery in the forex market segments by reducing arbitrage between onshore and offshore markets, he said.
Das said the benefits of allowing banks to participate in the NDF markets are "widely recognised" and the decision was taken after a consensus emerged within the RBI after examining all the aspects.
The measures taken after consultations with the government include allowing Indian banks which operate from International Financial Services Centre (IFSC) Banking Units (IBUs) to participate in the NDF market, Das said.
Banks can participate through their branches in India, their foreign branches or through their IBUs, Das added.
The decision is effective from June 1, 2020, and the final directions on the same will be issued later in the day, he said.
This measure was announced along with a massive 0.75 percent cut in the policy rate by the rate-setting panel, which advanced its meeting by a week, given the global developments amid coronavirus outbreak.
Updated Date: Mar 27, 2020 14:18:14 IST