The Reserve Bank of India (RBI) has zero tolerance for volatility in the rupee and will continue to engage with the foreign exchange market to ensure the rupee finds its level, its Governor Shaktikanta Das said on Friday. It added that the Indian currency is holding up well compared with several developed economies, due to the country’s strong macroeconomic fundamentals.
Speaking at a banking conclave organised by Bank of Baroda in Mumbai, Das said, “The RBI has been supplying US dollars to the market to ensure adequate supply of liquidity. Also, it is necessary to look at unhedged forex exposures factually, rather than being alarmed by it."
The Indian rupee plunged to a record low again on Thursday hitting 80.06 against the US dollar, crossing the 80-mark first time ever. The domestic currency has touched all-time lows multiple times in the past few months. It has fallen by about 8 per cent in the current financial year. On Friday, the rupee was last trading at 79.90 to a dollar.
The depreciation in the rupee is due to the continuous outflow of foreign investments, surging crude oil prices, tight monetary policy by US Federal Reserve, and general dollar strength. This was aggravated by global uncertainties arising out of a geopolitical crisis due to the Russia-Ukraine war.
Das also said banks need to move in tune with changing times. “High interest rates in the US along with increased risk aversion have fuelled safe-haven demand of the US dollars. The RBI continues to remain watchful of headwinds and will take measures as required."
He added that the RBI is supplying dollars to markets to ensure that there is adequate liquidity in the forex market.
Das also said the central bank does not have any specific level for the rupee in mind and it is supplying dollars as there is a genuine shortage of the American currency in the market. He also said the RBI has built its foreign exchange reserves for situations like these and has adequate levels of reserves to handle the current crisis.
“Movements of the rupee have been relatively smooth and orderly. We will continue to engage with the forex markets and will ensure that the rupee will find its optimal level as compared to its fundamentals… The Indian economy remains relatively better placed, taking cushion from its healthy economic fundamentals. Spillovers from the global monetary policy tightening, commodity prices, geopolitical risks have become overwhelming for the currencies world over," Das said.
The RBI governor added that currencies of emerging market economies and developed economies are weakening against the dollar due to safe-haven demand. “Overall global situation remains grim."
In order to stabilise the rupee and attract foreign investments, the Reserve Bank of India recently unveiled fresh measures, including easing rules for FPIs, interest rates cap removed for FCNR and NRE term deposits and raising limits on external borrowings.
Experts, however, feel the rupee could continue to weaken towards 79.50-80 per dollar by July end weighed down by global macro-economic factors. By September-end, the rupee could test 81.00-81.25 per dollar by September-end.
(With Inputs from Agencies)