RBI's light touch on rupee volatility spurs hedging by firms

The Reserve Bank of India's increased tolerance for rupee volatility is prompting companies to more actively manage forex risks, enhancing the economy's resilience to global shocks.

- NIMESH VORA & JASPREET KALRA

THE RESERVE BANK of India's increased tolerance for rupee volatility is prompting companies to more actively manage forex risks, enhancing the economy's resilience to global shocks.

Since Sanjay Malhotra assumed office as the Reserve Bank of India (RBI) governor on December 11, the rupee's daily trading ranges have nearly tripled and a key volatility indicator has doubled, reflecting the central bank's reduced intervention in forex markets.

The RBI is comfortable allowing the rupee to move in line with Asian peers, stepping in only to curb excessive volatility, said four sources familiar with the central bank's thinking and treasury heads at large banks.

The RBI's less interventionist stance has effected a notable pick-up in currency hedging by corporates. In turn, this contributes to a more stable financial system, according to former RBI chief Duvvuri Subbarao.