Six bankers have indicated that the RBI has communicated to them the directive of refraining from establishing fresh outright arbitrage positions.

However, it has been noted that swap arbitrage positions are still permissible under this directive.

This guidance from the central bank has been conveyed verbally, with no formal written communication provided, as stated by two bankers.

While the RBI directly engaged with these three banks, an additional trio of bankers have also acknowledged being aware of such a development.

The sources have chosen to maintain anonymity due to their lack of authorization to communicate with the media. The RBI has not yet responded to an email requesting comment on the matter.

A treasury official at a private bank commented that it appears the RBI has identified specific banks to mitigate potential volatility in the NDF market.

In previous instances, the central bank imposed similar restrictions to manage fluctuations in the rupee’s value.

For example, when the rupee reached a historic low of 83.29 in October 2022, the RBI informally advised domestic banks against building further positions in the NDF market.

These restrictions were lifted in December of the same year as the volatility subsided.

Last week, the rupee reached a value of 83.16. Traders have noted that it was the intervention of the RBI in both the NDF and onshore markets that prevented a further decline to the record low.

At the close of Wednesday’s trading, the rupee stood at 82.6850, having experienced a significant appreciation from an earlier session low of 83.0050.

Reported by Nimesh Vora and Siddhi Nayak. Additional contributions from Sethuraman NR in Bengaluru and Jaspreet Kalra in Mumbai

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