Informist, Thursday, Nov. 14, 2024

NEW DELHI – Reserve Bank of India Governor Shaktikanta Das on Thursday defended the central bank's forex intervention policy, saying it is "well-articulated" and "consistent". Speaking at CNBC-TV18's Global Leadership Summit in Mumbai, with the Indian currency near its all-time low against the US dollar, Das said the central bank's interventions are not to target a level but to anchor market expectations.

"India's exchange rate regime is market determined and the Reserve Bank does not target a level or band of the exchange rate. The forex interventions are carried to ensure an orderly movement of the exchange rate and to curb undue volatility, anchor market expectations, and ensure overall financial stability," Das said.

The central bank chief's comments come amid a continued, albeit gradual, decline in the strength of the rupee, with the Indian currency touching a fresh record low of 84.41 a dollar on Wednesday. On Thursday, the exchange rate has been largely steady, with a strong dollar index nullified by dollar sales by banks, likely on behalf of the RBI, according to forex market dealers.

"(It) seems like the 84.50 (a dollar) level will not be hit easily. It may take some time. They (RBI) are letting it (rupee) move very slowly," Informist reported earlier on Thursday, quoting a dealer with a private bank. At 1215 IST, the rupee traded at 84.40 a dollar, only slightly higher than its all-time low.

While the RBI has always maintained it only buys or sells dollars to check undue volatility, the last year or so has seen exchange rate volatility at extremely low levels. In a column last week, Rajeswari Sengupta, an associate professor of Economics at Mumbai-based Indira Gandhi Institute of Development Research, noted that while the average annual volatility in the rupee-dollar exchange rate was around 5% in the two decades through 2020, the same has fallen to 1.9?tween April 2023 and August 2024, "an extraordinarily low level not only compared to India's own past but also its emerging economy peers".

In his speech, Das said on Thursday that the exchange rate is also a barometer of an economy's inherent strength. "If the Indian rupee has remained relatively stable despite severe external shocks, including the largest and steepest tightening by the US Fed in 2022 and 2023, it speaks volumes about the sea-change in our macro fundamentals from the days of the taper tantrums. In fact, if we look at other major segments of financial markets regulated by the Reserve Bank, that is the money market and government securities market, they have also remained stable despite large swings and spillovers from global markets."

More broadly, the RBI governor said the Indian economy is "sailing through smoothly" amid global headwinds, thanks to strong macroeconomic fundamentals, a stable financial system, and a resilient external sector. He said the RBI's primary focus has been on maintaining financial stability, which "breeds growth and prosperity". "Our endeavour is to maintain a balance between banking sector stability and economic growth, both of which are necessary and complementary to each other." End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Siddharth Upasani

Edited by Vidhi Verma

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