London has overtaken India's financial capital Mumbai to become the top centre for trading the rupee. That’s adding to a sense of urgency among local authorities to deepen the onshore market. Citing the latest survey from the Bank for International Settlements (BIS), the report pointed out that the average daily volumes for rupee in the UK soared to $46.8 billion in April, more than five-fold jump from $8.8 billion in 2016. Which exceeded the $34.5 billion recorded in India.
The dollar-rupee offshore non-deliverable forwards saw a three-fold increase in over the last three years. Rupee trades also ballooned in Singapore, Hong Kong and the United States over the three years as per the report. This was seen across products including spot, outright forwards, foreign-exchange swaps etc. Thus, more products also ramp up volumes which can be used by the domestic market. Alive to the growing size of the offshore rupee market, the government and the RBI have been looking at ways to improve access for overseas investors and offer them more products to ramp up volumes at home.
“The sharp increase in offshore FX market activity reestablishes that it could amplify currency volatility in the domestic currency and also reduce the effectiveness of policy steps taken to limit volatility during times of stress,” said Madhavi Arora, an economist at Edelweiss Securities.
A panel appointed by the RBI last month proposed extending onshore currency trading hours, allowing banks to offer pricing to non-residents at all times and allow trading of non-deliverable forwards in the rupee among steps to deepen trading onshore. Data released by the BIS “now makes an even more compelling case for policy makers to focus on increasing the wallet share of the onshore market,” said Arora.