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India, UAE mull options to curb FX rate risks on rupee trade

India, UAE central banks may look at options to minimize the risks from rupee volatility



A man counts Indian currency notes inside a shop in Mumbai,
Image Credit: Reuters

Mumbai: India is looking to work out a mechanism to hedge exchange rate risks in the proposed rupee-based trade with the UAE to limit losses for exporters, an India official told reporters on Thursday.

India and the UAE representatives are likely to meet in May to review the progress on their Comprehensive Economic Partnership Agreement and discuss settling payments for trade in rupees, which is yet to take off, the official said, asking not to be identified before a final decision is taken.

The South Asian nation has been attempting to internationalize the rupee to reduce dollar demand and insulate its economy from global shocks. India had earlier said that apart from Russia, countries in Africa, the Gulf region, Sri Lanka and Bangladesh are also keen to trade in its local currency.

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The central banks of India and UAE may look at options to minimize the risks from rupee volatility, the official said.

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Though settlement in the rupee is a new initiative and is facing teething troubles with regard to exchange rate mechanism, some “isolated” transactions have taken place, Directorate General of Foreign Trade chief Santosh Kumar Sarangi said last month.

The Reserve Bank of India announced the plan to settle international trade in the local currency last year. It will let importers make payments in the rupee, which will be credited to the special account of the correspondent bank of the partner country, while exporters will be paid from the balances in the designated special account.

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