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Prop for foreigners

Dollar dream

Mumbai, April 1: The Reserve Bank of India (RBI) today allowed overseas investors to hedge their currency exposure to to manage their risks in a better manner.

In order to enhance hedging (a measure to reduce risk) facilities for foreign investors in debt instruments, the RBI in its first bi-monthly policy proposed to allow them to hedge the coupon receipts falling due during the next 12 months.

“This is determined by improving the hedging environment for foreign investors in India,” RBI governor Raghuram Rajan told newspersons after announcing the policy today.

In another move that may boost foreign direct investment, the central bank withdrew all the existing guidelines relating to valuation in case of any acquisition or sale of shares of unlisted entities.

The RBI, which is set to come out with detailed guidelines on this front shortly, said such transactions would henceforth be based on acceptable market practices.

The central bank also said it was in the final rounds of discussion with the Securities and Exchange Board of India to finalise the modalities to allow foreign institutional investors (FIIs) to hedge their currency risk by using exchange traded currency futures (an agreement to buy or sell currency in the future) in the domestic exchanges.

Rajan said the Reserve Bank’s effort was to avoid excess volatility in the forex market and not to achieve a level for the rupee. “I don’t think we are trying to establish any level (of rupee) in the market. What we do is try and attempt to keep the exchange rate from becoming overly volatile and it will continue to be our policy.”

 
 
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