The RBI governor said, “You buy an umbrella to use when it rains!”
India’s foreign exchange reserves fell $7.5 billion as the Reserve Bank of India uses its war chest to limit the rupee’s sharp decline and “jerky moves,” according to Governor Shakkanta Das, who said: “You buy an umbrella, to use when it rains!”
RBI weekly supplementary data showed that foreign exchange reserves fell by $7.54 billion to $572.712 billion in the week ended July 15, compared to $580.252 billion the previous week, marking a level , which has not been reached since 2020, when the pandemic took hold.
That latest data puts nearly $70 billion wiped out of record-high reserves in October last year and a loss of about $30 billion since Russia invaded Ukraine.
The rupee has repeatedly made new lows, surpassing 80 per dollar for the first time this week, falling from around 74 earlier in the year.
While this has been a global trend since the US federal government switched its policy to aggressively raising interest rates to tame scorching inflation and boost the dollar, the RBI has intervened through state-owned banks in the spot and futures markets to amend the rupee’s damage to limit.
RBI Governor Shaktikanta Das said on Friday, “You buy an umbrella to use when it rains!” of the rupee’s decline against the US dollar, suggesting the central bank is using foreign exchange reserves to limit currency volatility Taxes.
He said the central bank has ensured expectations remain grounded and the FX market stable and liquid by avoiding abrupt and unpredictable moves in the rupee.
“After all, that’s exactly what we accumulated reserves for when capital inflows were strong. Mr Das said.
A flight of foreign capital from almost every other currency to dollar-denominated assets has been unprecedented, with the euro breaking through parity for the first time in two decades and the greenback hitting a 20-year high last week.
The country’s import coverage had fallen by a massive $8.062 billion to $580.252 billion in the week ended July 8.
On Thursday, the rupee hit an all-time low of 80.06 against the US dollar, a breach of a key psychological level, adding to fears the currency could fall much more sharply as a breach of certain rate hikes set against the US dollar becomes currency above resistance.
But the Indian currency managed to regain lost ground to close at 79.05 against the greenback on Friday, helped by RBI intervention.
“I would like to reiterate that we do not have any specific level of the rupee in mind, but we want to ensure its orderly development and we do not tolerate volatile and bumpy movements,” the RBI governor said while addressing a banking conclave organized by the Bank of Baroda.
Mr Das added that the rupee is holding up well against other developed and emerging market currencies on the nation’s resilient macroeconomic fundamentals.
Reuters had reported that the RBI was ready to spend $100 billion to support the rupee if necessary.
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