Shaktikanta Das
The Indian rupee has fared much better than several reserve currencies, as well as emerging market and Asian peers, Reserve Bank of India Governor Shaktikanta Das said on September 30, while reiterating that the forex reserves position remains strong.
“India’s foreign exchange reserve at US$ 537.5 billion as on September 23, 2022 compares favourably with most peer economies,” Das said his monetary policy address. “About 67 percent of the decline in reserves during the current financial year is due to valuation changes arising from an appreciating US dollar and higher US bond yields.”
RBI’s interventions in the forex market are based on continuous assessment of the prevailing and evolving situation. The aspect of adequacy of forex reserves is always kept in mind. The umbrella continues to be strong, the governor said.
The rupee has plumbed to record lows this year as sharp rate hikes by the Federal Reserve batter emerging market currencies.
While the US dollar has appreciated 14.5 percent so far this financial year until September 28, causing turmoil in currency markets across the world, the rupee has depreciated by 7.4 percent against the US dollar, the governor said.
As such, the movement of Indian rupee has been orderly compared to most other countries, he added.
Reiterating the central bank’s position on the currency, the governor said that the rupee is a freely floating currency and its exchange rate is market determined.
The RBI does not have any fixed exchange rate in mind. It intervenes in the market to curb excess volatility and anchor expectations, Das said.
The overarching focus is on maintaining macroeconomic stability and market confidence.
“Our actions have helped in engendering investor confidence as reflected in the return of capital inflows since July. Over the medium term, the primacy of price stability embedded in our flexible inflation targeting framework provides the anchor for exchange rate stability,” he said the governor.
He expressed confidence that India’s external financing requirements will be met comfortably.
While net foreign direct investment has improved to $ 18.9 billion in April-July 2022 from $ 13.1 billion a year ago, foreign portfolio investors have also returned to the domestic market with net inflow of $ 7.5 billion during July-September after an outflow for nine consecutive months, he said.
India’s other external indicators, like the external debt to GDP ratio; net international investment position to GDP ratio; ratio of short-term debt to reserves; and debt service ratio also indicate lower vulnerability as compared with most other major EMEs, he added.
“In fact, India’s external debt to GDP ratio is the lowest among major EMEs. In the final analysis, we remain confident of meeting our external financing requirements comfortably.”
RBI Deputy Governor Michael Patra told reporters that India’s current account deficit should be under 3 percent of gross domestic product for the full year.
While the current account deficit will widen modestly in the first half, it would narrow in the second half of the fiscal, he said.
The comments come after RBI data showed the current account gap widened to 2.8 percent of GDP in April-June, up from 1.5 percent in the previous quarter.
