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 looking to deal with currency volatility in foreign exchange. Using stores.
Das also said that by avoiding sudden and volatile shifts, the central bank has ensured that expectations are kept up and the forex market operates in a stable and liquid manner.
He also said that the central bank will continue to engage with the foreign exchange market and ensure that the rupee finds its level in line with its fundamentals.
The Governor said that in view of the actual shortfall in the supply of foreign exchange in the market relative to the demand due to import and debt servicing requirements and portfolio outflows, RBI is supplying US dollars in the market to ensure adequate foreign exchange liquidity.
“After all, this is the same purpose for which we accumulated reserves when capital flows were strong. And, may I add, you buy an umbrella to use it when it rains!” said Das.
The country’s foreign exchange reserves declined by $ 8.062 billion to $ 580.252 billion in the week ended July 8.
On Thursday, the rupee touched an all-time low of 80.06 against the US dollar but managed to recover lost ground and close at 79.05 against the greenback.
Das said at the banking conference organized by the bank, “I want to reiterate that there is no particular level of rupee in our mind, but we want to ensure its orderly development and we have zero tolerance for volatile and bumpy movements. Is.” Why Baroda?
According to him, the rupee holds good against the currencies of advanced and emerging market economies due to the country’s resilient macroeconomic fundamentals.
The recovery is gradually consolidating, the current account deficit is modest and inflation is stabilizing, he said, adding that the financial sector is well capitalized and sound.
The governor said that due to the actions of the RBI, including measures to encourage inflows, the movement of the rupee has been relatively smooth and orderly.
Earlier this month, the RBI had announced a slew of measures, including liberalizing norms for foreign investment in government bonds and increasing foreign borrowing limits for companies, to boost foreign exchange inflows and contain the rupee’s depreciation.
Further, Das said a major part of the outstanding external commercial borrowings (ECBs) is effectively hedged.
According to RBI’s internal research estimates, the optimum hedging ratio for India is 63 per cent.
He said that keeping in view the natural hedge and risk of public sector companies, the position of optimum hedge ratio in terms of ECB’s stock in the country’s external debt is comfortably satisfied.