September 27, 2021

Offshore challenge – The Hindu BusinessLine

The higher transaction volume in the offshore non-deliverable forward (NDF) market compared to the onshore market for the rupee, is proving to be a deterrent to effective foreign exchange management by the Reserve Bank of India (RBI). The growing influence of the offshore market on domestic forex movement was further established by a recent RBI working paper written by Harendra Behera, Rajiv Ranjan and Sajjid Chinoy. The paper notes that in normal circumstances, both the onshore and offshore markets for the rupee tend to influence each other. But in periods of heightened uncertainty such as during April 2012 to November 2014 and October 2017 to December 2019, the price volatility in the offshore NDF market tends to spill over to the domestic market. This influence impedes forex management since the participants of the NDF market are based in offshore centres in London, Singapore and…

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