The Reserve Bank of India (RBI) has broadened the avenues for hedging against the price risk of gold in international markets.
Previously, as per the RBI’s December 2022 directive, Indian entities were restricted to managing their gold price risk exclusively through exchanges recognized by the International Financial Services Centres Authority (IFSCA) in the International Financial Services Centre (IFSC). However, in a bid to increase flexibility for these entities, the RBI has now authorized the use of over-the-counter (OTC) derivatives as an additional hedging tool.
These derivatives can be used alongside the existing exchange-traded derivatives, adhering to the stringent guidelines outlined in the updated Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022.
The updated hedging regulations take effect immediately, the RBI stated in a circular. The move aims to ensure that entities have a broader range of strategies at their disposal to manage potential losses caused by fluctuations in gold prices.
