RBI Enables Round-The-Clock Rupee Trading

The Reserve Bank of India has enabled local banks to offer round-the-clock trading in the Indian rupee, as a step towards reducing the rising influence of offshore trading in the currency markets.

In a notification issued today, the RBI said that authorised dealers may undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours. Transactions with persons resident outside India, through their foreign branches and subsidiaries, may also be undertaken beyond onshore market hours, it said.

In October, the RBI had said that it intends to accept at least two key recommendations made by a committee headed by former Deputy Governor Usha Thorat to counter a shift in trading volumes away from the local markets and towards offshore centres. The committee had said that banks should be allowed to offer foreign exchange prices at all times.

Demand For Extended Trading Time

Calls for increased trading hours have grown louder against the backdrop of increased offshore trading in the Indian rupee.

According to the latest survey by the Bank of International Settlements released in September 2019, the average daily volume of rupee trading in India was $34.49 billion. In contrast, the average daily trading volume in the U.K. was $46.82 billion, while it stood at $14.40 billion in the U.S. and $12.57 billion in Hong Kong. The data, the BIS, explained, includes spot transactions, outright forwards, foreign exchange swaps, currency swaps, options and other products.

Taken together, trading of Indian rupee-linked products in these three large offshore centres was double the trading in onshore markets.

The Thorat committee cited a host of reasons for this dominance of offshore markets, including capital controls, convenience of time zones, location of global treasury operations of multinational companies and short-trading hours in onshore forex market.

The report added that some of these constraints can be addressed. “For instance, certain market micro-structure issues (such as extending the market hours of onshore currency markets) can be addressed relatively quickly without any regulatory compromise,” the committee had suggested.