RBI Mandates a 20% Foreign Exchange Risk Reserve on Large Rupee Derivative Contracts
The Reserve Bank of India has directed authorised dealer banks to park a Foreign Exchange Risk Reserve (FERR) with the central bank equal to 20% of the rupee equivalent of every eligible foreign-exchange derivative contract above US$2 million in notional value, held as non-interest-bearing cash. Announced as the rupee neared a record low, it targets contracts in which users buy foreign currency against the rupee to hedge current-account exposures, making speculative hedging costlier; the RBI may vary the percentage. It follows the 63rd MPC meeting, which lifted the repo rate to 5.50%, and the CRR daily-maintenance rise to 99% from 16 October.
The RBI was established on 1 April 1935 under the RBI Act, 1934 and nationalised on 1 January 1949; its headquarters is in Mumbai | India's foreign exchange market is regulated under FEMA, 1999, which replaced FERA, 1973 | The Cash Reserve Ratio is prescribed under Section 42 of the RBI Act, 1934 and the SLR under the Banking Regulation Act, 1949