The recent volatility in the Indian rupee’s exchange-traded derivatives has caused quite a stir among traders, but experts are confident that the currency’s exchange rate will remain stable. According to four bankers, the turmoil in the rupee’s derivatives market, particularly in options, is not expected to have any significant impact on the over-the-counter spot dollar/rupee exchange rate.
The chaos in the derivatives market began when brokers started asking clients to unwind their positions or provide proof of underlying forex exposure to comply with a central bank rule. This led to some traders squaring off their existing positions and disrupted futures and options trading. However, bankers reassured that this will not spill over to the spot market.
Anshul Chandak, head of treasury at RBL Bank, explained that the divergence in futures and options prices from the over-the-counter market is due to the halt in new positions on exchange rupee derivatives. Despite this, the spot market remains unaffected.
A treasury official at a private sector bank emphasized that the unwinding of option positions on exchanges is unlikely to impact spot prices significantly, as the risk associated with these positions is relatively low compared to the depth of the OTC market. The official noted that even when option prices surged on Wednesday, the dollar/rupee spot rate remained stable.
While the central bank’s hedging rule may lead to a decrease in speculation and liquidity on exchanges, experts like VRC Reddy, treasury head at Karur Vysya Bank, are confident that it will not have any bearing on the spot market. As the rupee continues to navigate through turbulent waters, it seems that stability in the exchange rate is on the horizon.