India’s market regulator called a halt to futures trading in key farm commodities on Monday, as the world’s biggest importer of vegetable oils, and a key producer of wheat and rice, struggles to tame food inflation.

The year-long suspension, India’s most dramatic move since it allowed futures trade in 2003, threatens market confidence by making hedging difficult for traders, weeks after farmers ended a year of protests that led to scrapping of contentious reforms.

“It’s like shooting the messenger, but we have sympathy with the government, because they were worried over edible oil inflation,” Atul Chaturvedi, president of trade body the Solvent Extractors Association of India, told Reuters.

In its order, the market regulator told commodity exchanges not to launch futures contracts of soybean, soyoil, crude palm oil, wheat, paddy rice, chickpea, green gram, rapeseed and mustard for a year.

For existing contracts, no new positions would be allowed in these commodities, the regulator, the Securities and Exchange Board of India (SEBI), added.

Indian prices of edible oil prices stand near record highs, which prompted New Delhi to substantially cut taxes on imports of palm, soy and sunflower oil, but the step had only marginal impact as global prices jumped.

With global prices expected to moderate in a few months, however, the government could have suspended the futures for three or four months instead of a year, Chaturvedi added.

India’s market regulator suspended trading in key agricultural futures to tame rising inflation
India’s market regulator suspended trading in key agricultural futures to tame rising inflation
Monday’s measure will make it tough for importers and traders of edible oils to do business as they extensively use domestic exchanges to hedge their risk, said Sandeep Bajoria, chief executive of oil broker and consultancy Sunvin Group.

“The flow of imports would slow down in the short term as traders don’t have a hedging platform,” added Bajoria.

Reuters

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