RBI eases rules for gold price risk hedging in IFSC
The
RBI on Monday eased rules to allow resident entities to hedge their exposures
to the price risk of gold using OTC derivatives in the International Financial
Services Centre (IFSC). Till now, resident entities including banks were
limited to hedging their gold price risk solely through derivatives traded on
exchanges within the IFSC, which are recognised by the International Financial
Services Centres Authority (IFSCA).
However, the latest directive from the RBI expands the avenues available for
hedging, providing these entities with additional flexibility.
The directive is issued in the form of ‘Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022’. The expanded opportunities for gold
price risk hedging will be subject to the regulations outlined in the Master Direction, which may be amended periodically by the RBI.
By allowing resident entities to engage in gold price risk hedging through OTC
derivatives within the IFSC, the central bank aims to facilitate more efficient
risk management strategies. Amidst the ongoing geopolitical
uncertainties, investors’ appetite is moving away from risk-driven assets and settling towards safe-haven assets like gold.
“The RBI directive came at an appropriate time when gold prices are highly
volatile. Gold serves not only as a valuable asset but also as a widely
utilised hedging instrument against inflation and economic uncertainty,” said
Haresh Acharya, director, India Bullion, and Jewellers’ Association. Tnn
Source: https://timesofindia.indiatimes.com/