The Reserve Bank of India’s (RBI) decision to allow hedging of gold price risk in the International Financial Services Centre (IFSC) will help the jewellery manufacturers and industry players who use Gold as an end product to mitigate their risks, experts tell ET Markets.

On Thursday, while giving his last monetary policy speech for the financial year 2023-24, Governor Shaktikanta Das announced the regulator’s decision to allow hedging of gold price in the Over the Counter (OTC) market of the IFSC. “It has now been decided to also allow them to hedge the price of gold in the over the counter (OTC) segment in the IFSC. This will provide resident entities more flexibility and easier access to derivative products in hedging their exposure to gold prices. The related instructions are being issued separately,” Das said in his speech.

Analyst Naveen Mathur, Director – Commodities & Currencies, Anand Rathi Shares and Stock Brokers sees this as a positive move for jewellery manufacturers and industry players who use gold as an end product for manufacturing. Mathur said that industry players along with retail traders who are importing and exporting gold are exposed to price risk as well as currency risk when they hedge on platforms such as MCX.

Allowing hedging at IFSC will help mitigate these risks as they will be able to directly hedge in dollar terms, Mathur said. In his view, it was a win-win situation for both the jewellery industry and the IFSC in terms of hedging transaction costs and remaining competitive.

He said that the exchanges in IFSC have tied up with the London Bullion Market Association and the Dubai Gold & Commodities Exchange to use benchmark prices for the settlement of futures contracts. “One can access these products subject to the exchanges’ hedging policy,” he added.

In a bid to facilitate hedging against gold price volatility, the central bank has taken another step by permitting resident entities in India to utilise overseas derivative platforms, both on recognised exchanges and over-the-counter (OTC) markets situated in the IFSC, a Bankbazaar expert said.This expert, who did not wish to be named, is of the view that this initiative aims to enhance the capacity of domestic traders and jewellers to manage their gold exposures more effectively, leveraging a wide range of hedging products accessible on a global scale.The Indian central bank today left the repo rate unchanged at 6.5% while maintaining a status quo on the standing deposit facility (SDF) rate at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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