RBI Policy
FX reserves still quite robust; most decline on valuation losses
This story was originally published at 16:25 IST on 6 December 2024
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NEW DELHI – India's foreign exchange reserves are quite robust even now and a good part of the depletion in reserves is owing to valuation losses, Reserve Bank of India Governor Shaktikanta Das said on the sharp fall in forex reserves in the last two months. "FX reserves are still quite adequate. We are confident of dealing with any spillovers," Das said at the post-policy conference on Friday.
India's foreign exchange reserves fell to a near five-month low of $656.58 billion in the week ended Nov. 22. The reserves have now declined by over $48 billion from the record high of $704.89 billion late in September. Market participants have attributed the recent slump in reserves primarily to the central bank's active intervention through dollar sales in the domestic spot market and in some part to revaluation losses.
Earlier in the day, while detailing the December policy outcome, the governor said foreign exchange reserves are deployed judiciously to mitigate undue volatility, maintain market confidence, anchor expectations and preserve overall financial stability. The RBI's intervention in the foreign exchange market focusses on smoothening excessive and disruptive volatility rather than targeting any specific exchange rate level or band, Das said.
His comments come at a time when the RBI has ramped up its intervention in the forex market to support the rupee, which has come under strong pressure and has been hitting successive record lows due to a globally strengthening dollar and foreign portfolio investor outflows after Donald Trump got re-elected as the US president. The rupee has depreciated nearly 0.8% since the US election, to a record low of 84.7700 against the dollar on Tuesday.
Das stated that both the depreciation of the rupee and its volatility have been less compared to its emerging market peers, reflecting India's strong macroeconomic fundamentals and improvement in the external sector outlook.
"Our overall approach ensures that forex reserves act as shock absorbers, safeguarding the economy from external spillovers, while supporting competitive and orderly market conditions," Das said. He said the central bank's exchange rate policy has remained consistent over the years, and is market-determined. Its central tenet is to maintain orderliness and stability, without compromising market efficiency.
Das said that the RBI has combined market discipline with prudent intervention in the foreign exchange market, which has created a system that supports stability, resilience and growth. "The flexible or market determined exchange rate regime is not merely a tool for managing external shocks; it is an important element of our approach to macroeconomic and financial stability," he added.
The governor also highlighted that the RBI's efforts to deepen and modernise the foreign exchange market have yielded significant results in terms of widening access and participation, and ensuring efficient price discovery.
Talking about the external sector, Das said that robust services exports and strong remittance receipts are expected to keep India's current account deficit within sustainable levels in 2024-25 (Apr-Mar). India's current account deficit was $9.74 billion in Apr-Jun, against a surplus of $4.59 billion in Jan-Mar and a deficit of $8.95 billion in the first quarter of 2023-24 (Apr-Mar). In percentage terms, the current account deficit in Apr-Jun amounted to 1.1% of GDP, slightly higher than 1.0% in Apr-Jun 2023. End
US$1 = INR 84.68
Reported by Pratiksha
Edited by Ashish Shirke
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