Bombay:
As the rupee fell against the US dollar, RBI Governor Shaktikanta Das said on Friday, “You buy an umbrella to use it when it rains!”, indicating that the central bank is using foreign exchange reserves to mitigate currency volatility. to catch.
Das also said that by avoiding sudden and volatile shifts, the central bank has ensured that expectations remain anchored and that the forex market functions in a stable and liquid manner.
He also noted that the central bank 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, in recognition of a real shortfall in the market’s supply of forex relative to demand, due to import and debt repayment requirements and portfolio outflows, the RBI has supplied US dollars to the market to ensure that there is sufficient supply. forex liquidity.
“After all, this is exactly the purpose for which we built up reserves when capital inflows were strong. And, may I add, you buy an umbrella to use it when it rains!” Das said.
The country’s foreign exchange reserves had fallen a whopping $8.062 billion to $580.252 billion in the week ended July 8.
On Thursday, the rupee hit an all-day low of 80.06 against the US dollar, but managed to regain lost ground and closed at 79.05 against the greenback.
“I would like to reiterate that we have no particular level of the rupee in mind, but we do want to ensure an orderly evolution and we do not have any tolerance for fleeting and bumpy movements,” Das said during the banking conclave organized by Bank of Baroda.
He says the rupee holds up well against currencies of advanced and emerging market economies because of the country’s resilient macroeconomic fundamentals.
The recovery is gradually strengthening, the current account deficit is modest and inflation is stabilizing, he said, adding that the financial sector is well capitalized and healthy.
The actions of the RBI, including measures to encourage the influx, have made the movements of the rupee relatively smooth and orderly, the governor noted.
Earlier this month, the RBI had announced a slew of measures, including liberalizing foreign investment standards in government bonds and raising foreign lending limits for companies, to boost foreign currency inflows and curb the rupee’s decline.
Furthermore, Das said that a predominant part of the outstanding external commercial loans (ECBs) has been effectively hedged.
According to internal research estimates from the RBI, the optimal hedge ratio for India is 63 percent.
Taking into account natural hedges and the exposure of public sector companies, the optimal hedge ratio condition is comfortably met in the case of ECB’s shares in the country’s external debt, he said.