RBI Sets FY27 Forex Roadmap: Rupee Stability, Regulatory Review and Market Reforms

The Reserve Bank of India (RBI) undertook several measures in FY26 to strengthen financial market regulation and improve the foreign exchange ecosystem, according to its annual report.

The Financial Markets Regulation Department (FMRD) focused on increasing transparency in over-the-counter (OTC) derivative markets, including the implementation of a unique transaction identifier framework for OTC derivative transactions.

It also worked on integrating the FX-Retail platform with Bharat Connect to expand its reach among retail users.

One of the key regulatory initiatives during the year was the review of the framework governing rupee interest rate derivatives (IRDs).

The revised framework, issued in December, was aimed at reflecting the evolving nature of the derivatives market and aligning it with broader risk management requirements of the financial system.

The RBI also took steps to deepen bond markets by allowing municipal bonds to be used as collateral in repo transactions. In addition, it eased investment norms for foreign portfolio investors (FPIs) by removing short-term investment and concentration limits.

The central bank further introduced trading and guaranteed settlement facilities for foreign exchange forward contracts with maturities of up to 36 months and continued efforts to strengthen the regulatory framework for electronic trading platforms.

During the year, the Fixed Income Money Market and Derivatives Association of India (FIMMDA) was recognised as a self-regulatory organisation for financial markets.

For FY27, the FMRD has outlined two key priorities. The first is improving transparency for retail foreign exchange users by requiring disclosure of currency conversion and transaction charges for FX cash, tom and spot trades.

The second is to consolidate all circulars related to secondary market transactions in government securities into a single Master Direction.

The RBI also plans to continue actively managing liquidity and foreign exchange markets to support monetary policy transmission and maintain orderly market conditions.

Agenda for FY27

The Financial Markets Operations Department will conduct liquidity operations in line with monetary policy objectives and intervene in the foreign exchange market, when necessary, to curb excessive volatility in the rupee-dollar exchange rate.

On the regulatory front, the Foreign Exchange Department will review and simplify several foreign exchange management regulations, including those relating to non-debt instruments, foreign currency accounts held by residents, deposits, insurance transactions and overseas investment rules.

The review will also cover regulations governing branch offices, liaison offices and project offices established by foreign entities in India, as well as foreign exchange compounding rules.

As part of its digitisation efforts, the RBI is consolidating foreign investment-related reporting on the Foreign Investment Reporting and Management System (FIRMS) platform.

Once completed, authorised stakeholders and authorised dealer banks will be able to generate electronic acknowledgements for foreign investment transactions directly through the system, reducing paperwork and improving efficiency.

"Going forward, the liquidity operations would continue to be in sync with the stance of monetary policy, while the foreign exchange operations would be principle-based, guided by the objective of ensuring orderly movements in the exchange rate of the INR," the RBI said in its report.