• External shocks resulting from spillover effects will normally be absorbed to a significant extent through exchange rate adjustments in those countries with flexible rate regimes. The empirical evidence shows that after a certain threshold the depreciation of a currency can have non-linear effects on inflation and other macroeconomic variables.
With a view to providing greater protection to less sophisticated users, a User Classification Framework segregating users into ‘retail’ and ‘non-retail’ has been introduced for OTC foreign exchange and interest rate derivative transactions. Retail users can be offered only non-complex derivative products while product innovation has been permitted for non-retail users as per their business needs. 19.