Informist, Friday, Jul 22, 2022
NEW DELHI – The Reserve Bank of India will ensure that the rupee finds its level in line with the strong fundamentals of the Indian economy, the central bank’s Governor Shaktikanta Das said at the Bank of Baroda Annual Banking Conclave 2022 today.
“By eschewing sudden and volatile shifts, we have ensured that expectations remain anchored and the forex market functions in a stable and liquid manner,” Das said. “We will continue to engage with the forex market and ensure that the rupee finds its level in line with its fundamentals.”
The governor said that the central bank has no particular level for the rupee in mind and would like to ensure its orderly evolution, adding that the RBI has zero tolerance for volatile and bumpy movements in the Indian currency.
On Tuesday, the rupee breached the psychologically-crucial level of 80-per-dollar for the first time ever, as foreign portfolio outflows continue amid fears of a global recession. At 1345 IST, the Indian currency was at 79.88 per dollar.
While the governor acknowledged that currencies of emerging market economies and even of some advanced economies are depreciating against the US dollar, he said that the Indian rupee is holding up relatively well, as the economy’s underlying fundamentals are strong.
“The current account deficit is modest. Inflation is stabilising. The financial sector is well-capitalised and sound. The external debt-to-GDP ratio is declining. The foreign exchange reserves are adequate,” he said.
In response to a question on the RBI’s steps for invoicing, payment, and settlement of exports and imports in rupee terms between trading partner countries, Das said that it’s too early to assess its impact, but over a period of time, it is expected to pick up.
“It is too early to say. It’s an additional facility that we have given to exporters and importers,” he said. “So far, imports, exports and all the international trade, as far as India is concerned, has been by and large dollar-denominated. There was a demand (for such a step) from the industry for quite some time,” he said.
Talking about the shortfall of forex supply in the market because of import, debt servicing requirements and portfolio outflows, the governor said that the central bank has been supplying dollars in the market for sufficient forex liquidity.
So far in 2022, overseas investors have pulled out nearly $31 bln from Indian capital markets. At the same time, the rupee has depreciated around 7% against the dollar.
“The RBI has been supplying US dollars to the market to ensure that there is adequate forex liquidity,” Das said. “After all, this is the very purpose for which we had accumulated reserves when the capital inflows were strong. And, may I add, you buy an umbrella to use it when it rains!”
India’s foreign exchange reserves stood at $580.25 bln as on Jul 8, down around $61.77 bln from the peak in October.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Pratiksha
Edited by Namrata Rao
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