UPDATE 1 — Indian central bank issues clarifications on FX hedging curbs

(Updates to add details, context) MUMBAI, Oct 15 (Reuters) — The Reserve Bank of India on Thursday clarified its latest measures to support the rupee after tighter hedging rules and cash-margin requirements on certain derivatives unsettled markets. The uncertainty led several lenders to pause dollar-rupee forward quotes amid confusion over which transactions would attract the cash-margin requirement. Rupee forward premiums subsequently climbed to multi-year highs following the central bank's new foreign-exchange curbs. Here are some details on RBI's clarification: • RBI clarified that foreign exchange risk reserve requirements, or FERR, will apply to specified foreign exchange derivative contracts used to hedge current account transactions and where the user purchases foreign currency against the Indian rupee • It will also be applicable on banks' hedging of their own assets or liabilities • But it will not apply to banks' market-making or proprietary trading transactions • It will also not apply to foreign exchange derivative contracts used to hedge repayments of overseas loans' interest payouts or principal • Authorised dealers will not earn interest in the foreign exchange risk