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Informist, Thursday, May 29, 2025

--RBI: Ample FX reserves, modest external debt buffers against capital flows 
--RBI: Committee set up to suggest improvements in reporting FX transactions 
--RBI: FX intervention aimed at maintaining orderly market conditions 
--RBI: To undertake FX operations to curb excessive volatility in dlr/rupee 
 

NEW DELHI – In line with its earlier stance, the Reserve Bank of India's foreign exchange operations would be guided by the objective of ensuring orderly movements in the exchange rate of the rupee going forward, the central bank said Thursday. 

"The Reserve Bank's intervention in the forex market is aimed at maintaining orderly market conditions by containing excessive volatility in the exchange rate without targeting any exchange rate level or band, thereby allowing monetary policy to primarily remain focused on domestic macroeconomic conditions and the outlook," the central bank said in its Annual Report for 2024-25 (Apr-Mar). 

The central bank's comments come at a time when the the Indian currency has been seeing sharp swings against the dollar in the face of increasing uncertainty from US President Donald Trump's volatile tariff policies. So far in May, the rupee has traded in a wide band of 83.7525-86.1050 a dollar.  

The RBI further said that its spot interventions in the forex market entail changes in domestic liquidity conditions, which might necessitate sterilisation of such interventions, given the monetary policy stance.

Late last year and early this year, the RBI heavily sold dollars for forward delivery in the dollar/rupee forward market to neutralise its spot interventions and avoid draining rupee liquidity. The RBI also conducted three buy/sell swap auctions worth $25 billion in Jan-Mar to infuse rupee liquidity. 

The RBI said it sustained its endeavour to ensure diversification of forex reserves by exploring new asset classes and jurisdictions for deployment of foreign currency assets in FY25 even though reserve management function continued to be challenging heightened market uncertainty, driven by geopolitical risks and financial market volatility. "Even as portfolio capital flows exhibited volatility, strong buffers in the form of ample foreign exchange reserves and modest external debt liabilities impart strength to the external sector, contributing to overall macroeconomic and financial stability," it said.

Foreign exchange reserves increased 3.4% in FY25, compared to 11.7% the previous year, the report said. India's foreign exchange reserves were at $685.73 billion as of May 16. 

Further, the RBI said a framework for the comprehensive reporting of foreign exchange transactions to further strengthen regulatory reporting was underway. "A committee has been constituted to review the existing reporting systems, identify gaps and overlaps, and suggest necessary improvements for streamlining reporting and facilitate analytics for more informed policy formulation. The report of the Committee is under preparation," it said. 

The central bank aims to expand the reach of the FX-Retail platform and enhance user experience in FY26. In the first phase, a pilot facilitating the purchase of dollars against the rupee by individuals and sole proprietors would be implemented, it said. FX-Retail is an electronic trading platform, launched by Clearing Corp. of India Ltd. in 2019, for retail banking customers to buy and sell foreign exchange.

Continuing with its efforts towards better accumulation and transparency under the legal entity identifier requirements for reporting of over-the-counter derivative transactions, global identifiers for over-the-counter derivative transactions will be implemented in India in line with global developments in FY26, the RBI said. The legal entity identifier is a global reference number that uniquely identifies every legal entity or structure that is party to a financial transaction, in any jurisdiction.  End

US$1 = INR 85.43 

Reported by Pratiksha

Edited by Avishek Dutta

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