RBI to Closely Monitor Excess Volatility in Forex Markets

Reserve Bank of India Vows to Contain Volatility in Indian Rupee

On April 8, the Reserve Bank of India (RBI) announced that it will continue to manage excessive volatility in the Indian rupee, ensuring that no expectations are raised for the currency's movement beyond macro fundamentals. This stance is consistent with the RBI's long-standing policy of exchange rates being market-determined.

The RBI has been actively intervening in the spot and offshore non-deliverable forwards (NDF) market in the last month, as the rupee hit fresh record lows due to elevated Brent crude prices. As a result, the country's forex reserves have declined from nearly $730 billion at the beginning of March to $688 billion as of March 27.

The rupee briefly crossed the psychological Rs 95 per dollar mark to an all-time low on March 30, despite the RBI's directive on net open positions on the Indian currency. However, the central bank's introduction of stringent measures for the offshore non-deliverable forwards (NDF) market led to banks unwinding their excessive speculative positions. This resulted in a sharp recalibration of offshore positioning and reduced volatility in the forex market.

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Comparison of Rupee Values

The RBI's actions have been praised by analysts from Crisil, who noted that the central bank has demonstrated its ability to tame excessive volatility using multiple instruments, ranging from open market operations to regulatory measures in the forex market. As of 13:50 IST, the rupee was trading at Rs 92.61 to the dollar, a slight improvement from the previous session.

The RBI maintained its repo rate at 5.25 percent for the second consecutive meeting, continuing with its 'neutral' stance.