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RBI aims to curb FX volatility; no target level, says banking source

Informist, Wednesday, Jul 20, 2022


–RBI intervening in FX to avoid bumpy, jerky movement 
–RBI feels rupee reflecting underlying demand-supply 
–RBI won’t try to prevent rupee from aligning with fundamentals 
–RBI actively intervening in all FX market segments 
–RBI wants to ensure FX markets stay liquid 
–RBI wants to ensure FX markets function normally 
–RBI not trying to protect 80/$1 level or any specific level 
–RBI ready to meet genuine dollar requirements of market 
–RBI keen to stabilise expectations in FX markets 
–RBI focused on ensuring stable movement of rupee 
–RBI actively checking FX market positions of banks 
–RBI not seeing speculative position build up by banks 

By T. Bijoy Idicheriah


MUMBAI – The Reserve Bank of India is actively intervening to address any jerky movements in the foreign exchange market and ensure that it functions normally, rather than target a specific level of the rupee against the dollar, a banking industry source told Informist.


“It is not about protecting 80 per dollar level. It is stepping in to address the genuine dollar availability issue, and wants to keep the market liquid and functioning normally,” the source said.


On Tuesday, the Indian currency breached the psychologically-crucial level of 80 per dollar for the first time ever as foreign portfolio outflows continue amid fears of global recession.  


However, after hitting an all-time low, the rupee recovered some losses as the RBI is likely to have sold dollars through some state-owned banks to curb the sharp fall in the Indian currency.


“RBI has repeatedly said that the central bank would not allow jerky movements, but would also not resist alignment with fundamentals. The rupee was getting fairly valued in a stable manner,” the source said.


The rupee is reflecting the underlying demand and supply for the dollar, as banks look to ensure servicing of debt and facilitation of import payments, the source said, adding that there is also pressure from portfolio outflows due to flight to safety to advanced economies.


So far in 2022, overseas investors have drawn out nearly $31 bln from Indian capital markets, while the rupee has depreciated around 7% against the dollar.


The RBI will use its foreign exchange reserves as appropriate to address any frictional dollar shortage that may arise due to this, the source said, adding this is why the central bank had built the reserves war chest in good times.


India’s foreign exchange reserves stood at $580.25 bln as on Jul 8, down around $61.77 bln from the peak in October.


Apart from intervening via every market segment as the situation may demand, RBI is also monitoring the foreign exchange positions of banks. It has not detected any speculative activity, which indicates that the currency movements are reflecting the genuine demand-supply situation, the source said.  End


US$1 = 79.97 rupees


Written by Richard Fargose

Edited by Vandana Hingorani


For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.


Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.


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Source: Cogencis

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