How to manage the offshore rupee market

There are price linkages between the offshore and onshore markets. During the depreciation of the rupee in 2013, the offshore market disrupted the domestic market for forex

The Reserve Bank of India (RBI) task force on offshore rupee markets recently submitted its report. The rationale for the existence and use of offshore markets for foreign exchange is rooted in capital controls. The expansion in cross-border capital flows coupled with capital controls led to the demand for non-deliverable forwards (NDF) on the part of those who have restricted access to onshore forwards markets and seek to hedge foreign exchange rate movements. Expectedly, the market is dominated by Asian and Latin American currencies subject to convertibility constraints.

The market for rupee NDF took off during the 1990s and has expanded