"RBI Will Do Whatever Is Necessary for Orderly Rupee Movement": Governor Sanjay Malhotra Cracks Down on Forex Speculation

• High-Frequency Churn: "Over the past few months, we have observed a very high proportion of trades being cancelled and rebooked on the same day. In some cases, about one-third of trades were closed or cancelled on the day they were entered into," Malhotra noted, emphasizing that forex markets exist for genuine commercial hedging rather than equities-style speculative views.
• The Countermeasures: To restore market discipline, the RBI disallowed the rebooking of cancelled forex derivative contracts, instituted a forex reserve requirement on speculative buy-side exposures, and reduced procedural documentation thresholds from $100 million to $5 million.
• Categorically Refuting Capital Controls: Malhotra rejected notions that these steps constitute capital controls, clarifying that all capital account avenues—including Foreign Portfolio Investor (FPI) equity/debt investments, External Commercial Borrowings (ECBs), and foreign direct investments—remain fully unhindered.

System Liquidity Realities and $150 Billion Inflow Pipeline

1. ₹3.5 Lakh Crore Real Bank Liquidity: While headline durable liquidity stands at around ₹10 lakh crore, the actual liquidity available with commercial banks is only ~₹3.5 lakh crore, as the remainder represents government cash balances that are not deployable in the market.
2. $150 Billion Mobilisation: Inflows from recent central bank initiatives, including concessional FCNR(B) swap windows, are projected to bring approximately $150 billion into the system.
3. External Sector Fortification: Malhotra reiterated long-term optimism regarding India’s Balance of Payments (BoP), pointing to operational Free Trade Agreements (FTAs) with the UK and EU, accelerated 20% ethanol blending curbing crude oil dependence, and the opening of 15- to 40-year government bonds under the Fully Accessible Route (FAR).