The Reserve Bank of India (RBI) on August 5 permitted standalone primary dealers to offer all forex market-making facilities.
“This measure would give forex customers a broader spectrum of market-makers in managing their currency risk, thereby adding breadth to the forex market in India,” the RBI said in the Statement on Developmental and Regulatory Policies.
Wider market presence would improve the ability of standalone primary dealers to provide support to the primary issuance and secondary market activities in government securities, said the RBI.
Further, the RBI has also allowed standalone primary dealers to deal in offshore rupee overnight index swap market. This is with a view of improving price discovery and removing segmentation between onshore and offshore swap market, the central bank said.
Guidelines in both the regards will be issued shortly, the RBI said.
The RBI aims to maintain stability in the foreign exchange market. The central bank has repeatedly stated that it will not allow excess volatility in the rupee’s exchange rate against the dollar.
As a part of its measures announced on August 5, the RBI said globally there has been a shift to alternate benchmark rates, other than the widely used Mumbai Interbank Outright Rate (MIBOR) based overnight indexed swap (OIS) contracts. Internationally, these have wider participant bases — beyond banks — and higher liquidity, said the RBI.