By Shakir Husain
NEW DELHI, July 22 (NNN-Bernama) — India’s central bank is using its vast foreign exchange reserves accumulated over the years to prop up the rupee.
The Indian currency has hit record lows against the US dollar in recent days, prompting the Reserve Bank of India (RBI) to supply extra dollars.
RBI governor Shaktikanta Das said on Friday the rupee’s movements have been relatively smooth and orderly due to the central bank’s actions, including measures to encourage inflows.
“I would like to reiterate that we have no particular level of the rupee in mind, but we would like to ensure its orderly evolution and we have zero tolerance for volatile and bumpy movements,” Das told a banking conference in Mumbai.
He said “in recognition of the fact that there is a genuine shortfall of supply of forex in the market relative to demand because of import and debt servicing requirements and portfolio outflows, the RBI has been supplying US dollars to the market to ensure that there is adequate forex liquidity.”
“After all, this is the very purpose for which we had accumulated reserves when the capital inflows were strong,” the RBI governor said.
The RBI held US$642 billion in foreign exchange reserves in October last year at their peak. The reserves stood at US$580.2, their lowest level in 15 months, according to the RBI’s weekly report on July 15.
The rupee went past the psychological 80 per dollar mark in recent days and traded around 79.9 against the greenback on Friday.
It has dropped more than six per cent this year.
Das said higher interest rates in the US along with increased risk aversion among investors have fuelled safe haven demand and strengthening of the US dollar, leading to a depreciation of emergency market currencies as well as those of some advanced economies.
He described the global economic situation as “grim”, citing factors such as the Russia-Ukraine war and COVID-19 pandemic.
— NNN-BERNAMA
