RBI relaxes regulations on hedging gold price risk in international markets

In a recent development, the RBI has relaxed rules allowing resident entities to hedge their exposures to the price risk of gold using OTC derivatives in the International Financial Services Centre (IFSC). Previously, resident entities such as banks were only permitted to hedge their exposure on exchanges in the IFSC that are recognised by the IFSCA.

The new directive issued by the RBI goes into effect immediately. The ‘Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022’ has been updated accordingly to accommodate this change, as announced by the central bank.

This move provides resident entities with further flexibility to hedge their exposures to the price risk of gold. The RBI emphasized that the new order will be subject to the stipulations outlined in the Master Direction, as amended from time to time. This step is expected to benefit entities seeking to mitigate risks associated with fluctuations in gold prices.

Overall, the RBI’s decision to ease rules on hedging gold price risk in the IFSC through OTC derivatives marks a significant development in the financial landscape. It is aimed at enhancing the risk management capabilities of resident entities and opening up new opportunities for hedging in the IFSC.