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London overtakes Mumbai as rupee trading center

INCENTIVES:The Indian government is looking at ways to improve access and product offerings for overseas investors to ramp up currency trading volumes at home

Bloomberg

A vendor waits for customers at a stall with wedding garlands made from rupee notes at a market in Srinagar, India, on Aug. 28, 2013.

Photo: AFP

London has overtaken Indian financial capital Mumbai to become the top center for trading the nation’s currency, adding to a sense of urgency among local authorities to deepen the onshore market.

Average daily volumes for rupee trading in the UK in April soared to US$46.8 billion, a more than fivefold jump from US$8.8 billion in 2016, according to the latest survey from the Bank for International Settlements (BIS) released this week.

That exceeded the US$34.5 billion recorded in India.

Trading in US dollar-rupee offshore non-deliverable forwards increased threefold over the three-year period, the survey showed.

Aware of the growing size of the offshore rupee market, India’s government and central bank 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 [foreign exchange] market activity re-establishes 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,” Edelweiss Securities Ltd economist Madhavi Arora said.

Rupee trading — including spot, outright forwards, foreign exchange swaps and other products — also jumped in Singapore, Hong Kong and the US over the three-year period, the survey showed.

Data from a Bank of England study corroborated the trend: Average daily volume in dollar-rupee non-deliverable forwards in London was US$28 billion in April, up from just US$8 billion in October 2016.

A panel appointed by the Reserve Bank of India last month proposed extending onshore currency trading hours, allowing banks to offer pricing to nonresidents at all times and allow trading of non-deliverable forwards in the rupee among steps to deepen trading onshore.

Other Asian economies have made similar efforts.

Last year, Bank Indonesia established a domestic non-deliverable market for the rupiah, although the nation has not been able to take back significant business, the survey found.

Data released by the BIS “now makes an even more compelling case for policymakers to focus on increasing the wallet share of the onshore market,” Arora said.

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