RBI Prepared to Implement Measures for Orderly Foreign Exchange Market

Reserve Bank of India Vows to Stabilize Foreign Exchange Market Amid Volatility

The Reserve Bank of India (RBI) is prepared to take necessary measures to ensure orderly movements in the foreign exchange market, said RBI Governor Sanjay Malhotra, in light of heightened volatility triggered by the ongoing conflict in West Asia.

In an interview with Mint, Malhotra emphasized that the RBI does not target any specific level for the rupee, but will intervene if speculative pressures intensify. The central bank has sufficient tools, including nearly $700 billion in foreign exchange reserves, to curb undue speculative movements in the forex market.

The rupee has weakened sharply since the outbreak of the Middle East conflict on February 28, depreciating by around 6%. However, Malhotra suggested that the recent fall may have pushed the currency into undervalued territory. He noted that with recent depreciation, the rupee has become undervalued in both nominal and real effective exchange rate (REER) terms.

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The RBI governor also indicated that the rupee could recover once geopolitical tensions ease. "Once the situation in West Asia normalizes, the rupee could appreciate," he noted.

Malhotra highlighted the need to address India's external balances, stating that measures are required to reduce the current account deficit, while improvements are also needed on the capital account side.

On monetary policy, he reiterated that the RBI's primary mandate remains inflation management. "If the evolving inflation trajectory provides policy space, we support growth," he said.

Comparison of Rupee Depreciation

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Note: The depreciation is relative to the start of the conflict on February 28.