In an unusual policy reversal, the Reserve Bank of India (RBI) has withdrawn its April 1 circular on forex risk management and interbank dealings with immediate effect, signaling a rethink on recent regulatory tightening in currency derivative markets.

The withdrawn framework had imposed restrictions on Indian rupee (INR) foreign exchange derivative transactions involving related parties. With the rollback, banks are no longer bound by those norms, although the central bank has clarified that fresh INR FX derivative contracts with related parties will not be permitted, except in two specific cases.

Importantly, RBI has allowed banks to cancel existing INR FX derivative contracts with related entities. It has also permitted the rollover of such contracts, offering operational flexibility to market participants managing legacy exposures.