RBI decision won't impact currency market: HSBC

Pradeep Khanna, MD & head of FX Trading, HSBC India, in a chat with CNBC-TV18, says that the Reserve Bank of India (RBI) circular on forex market is just operationalisation of a process of moving towards setting limits on open positions.

He says the central bank had put out the draft format sometime last year and  the circular came out after getting feedback from market participants.
The RBI notification says, "In view of the various developments in the forex markets, it has been decided to revise the existing guidelines on calculation of the Foreign Exchange Exposure Limits of the Authorised Dealers." Also read: Rupee hits near two-month low; support seen for now Q: What did you make of the circular that the RBI has put out? What do you think the impact might be on the currency market?
A: I really don’t think it should have too much of an impact on the currency market. In fact, what the RBI has put out on their website on Friday evening is pretty much operationalisation of a new process of moving towards setting limits which they had put out in draft format sometime last year, and had as usual kept open for comments from market participants, etc.
Having incorporated the comments that they received, they have now actually operationalised that.
While doing that, they have also taken the decision to roll back the restrictions that they had put on the open position limits which they had mandated in December 2011. They have always said that the restrictions they had put in place were a short-term measure. Having kept them in place for close to 14-15 months, they have finally decided that they will roll it back. Q: This futures and options that cannot be netted against over-the-counter (OTC) positions - you don't think will have a significant bearing on which way the currency moves today.
A: Banks could still avail of those limits that the RBI had given them to run open positions. It’s just that a very large part of those limits had to be utilised on exchange-traded futures. Now, banks can go back to running those positions in the OTC market if they so wish. They have kept in place the rule they had that you cannot net off positions in futures versus positions in OTC.
This means that I cannot just continue to an unlimited basis, let’s say, buy on futures and sell in the OTC, and say that two net each other off – the RBI has said that will not be allowed. Only the restrictions on that will continue to be in place. Otherwise, if I had X limit, I now have the freedom to choose whether to run that limit in the OTC or the futures.