RBI issues clarification on forex hedging curbs

What happened: The RBI issued FAQs clarifying its Foreign Exchange Risk Reserve (FERR) rules for forex derivatives, following measures announced since October 10 that raised market concerns over scope and hedging impact. Key numbers: FERR applies when notional value exceeds $2 million equivalent. Reserve is 20% of rupee notional. Why it matters: The clarifications define exemptions, including certain capital account outflows, and confirm FERR balances earn no interest and do not count as HQLA, addressing participant uncertainty over hedging costs.

The RBI issued FAQs clarifying its Foreign Exchange Risk Reserve (FERR) rules for forex derivatives, following measures announced since October 10 that raised market concerns over scope and hedging impact.

The clarifications define exemptions, including certain capital account outflows, and confirm FERR balances earn no interest and do not count as HQLA, addressing participant uncertainty over hedging costs.