The Reserve Bank of India has eased position limit in interest rate futures (IRFs) for foreign portfolio investors (FPIs). The banking regulator has allowed a limit of ₹5,000 crore for FPIs to go long in IRFs.

An Interest Rate Futures contract is an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today. The underlying security for Interest Rate Futures is either a Government Bond or a Treasury Bill.

Currently, the FPI limit for Government Securities (G-Secs) is fungible between investments in G-Secs and investment in IRF.

FPI long positions in IRF are not allowed on G-Sec limit utilisation reaching 90 per cent.

“To facilitate further market development and to ensure that access of FPIs to IRFs remains uninterrupted, it has been decided to allocate FPIs a separate limit of ₹5,000 crore for long position in IRFs,” RBI said.

Accordingly, the aggregate long position of all FPIs, each of whom has a net long position in any IRF instrument, will be up to ₹5,000 crore, aggregated across all IRF instruments. This comes just days after the RBI allowed easier position limits for retail & HNI investors and foreign portfolio investor in India’s currency derivatives market.

RBI has allowed positions (long or short), without having to establish existence of underlying exposure, up to a single limit of $100 million equivalent across all currency pairs involving the rupee, put together, and combined across all exchanges.

Currently, domestic investors and FPIs are allowed to take a long (bought) or short (sold) position in USD-INR up to $15 million per exchange without having to establish existence of underlying exposure.

In addition, residents and FPIs are allowed to take long or short positions in EUR-INR, GBP-INR and JPY-INR pairs, all put together, up to $5 million equivalent per exchange without having to establish existence of any underlying exposure.

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