RBI does not target rupee level, says governor Malhotra as currency nears 90
Sanjay Malhotra emphasises that the RBI allows the currency to “find its correct position and correct level”
Reserve Bank governor Sanjay Malhotra on Friday reiterated that the central bank does not seek to defend or maintain any particular level of the rupee, even as the domestic currency hovers close to the 90 mark against the US dollar.
Addressing the media after the bi-monthly monetary policy review, Malhotra said the exchange rate is essentially market-driven. “We don’t target any price levels or any bands. We allow the markets to determine the prices. We believe that markets, especially in the long run, are very efficient. It is a very deep market,” he noted.
He acknowledged recent movements in the foreign exchange market, but stressed that the RBI’s role was limited to smoothing undue swings. “Fluctuations keep taking place. Our effort is always to reduce any abnormal or excessive volatility. That is what we will continue to endeavour,” he said.
The central bank has announced three-year USD/INR buy-sell swaps of USD 5 billion this month. Responding to a question on whether the move was intended to arrest the rupee’s slide, Malhotra clarified that it was purely a liquidity step. “It is a liquidity measure. It is not to support the rupee,” he said.
Malhotra emphasised that the RBI allows the currency to “find its correct position and correct level”, adding that fundamentals remain strong. India, he said, has “sufficient foreign exchange reserves” and a “manageable current account”, which should support healthy capital inflows.
Foreign portfolio investment has seen a net outflow of USD 0.7 billion so far in the current financial year (April–3 December), driven largely by sustained selling in equities. Inflows via external commercial borrowings and non-resident deposits have also moderated compared with the previous year.
As of 28 November, India’s foreign exchange reserves stood at USD 686.2 billion, offering more than 11 months of import cover.
With the policy rate cut by 25 basis points in this review, Malhotra said the focus will now shift to transmission of the reduction into lending rates. “Having reduced the policy rate, the focus will be on transmission to the real economy,” he added.
With PTI inputs