RBI Guv Shaktikanta Das sounds an optimistic note, says Rupee doing well than its peers

Defending its moves to safeguard the Indian Rupee's unprecedented fall against the US dollar, Reserve Bank of India Governor Shaktikanta Das said that the domestic currency has been performing well compared to several reserve currencies, as well as its emerging markets and Asian peers. While speaking at the Monetary Policy statement meeting on Friday, Das said India’s external position is quite strong despite high inflation and recession scare in the western countries.  

“India’s foreign exchange reserves are at $537.5 billion as of September 23, 2022, and are favourable as compared to most peer economies,” Das said. “About 67 per cent of the decline in reserves during the current financial year is due to valuation changes arising from an appreciating US dollar and higher US bond yields,” he stressed. 

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It is to be noted that India’s foreign exchange reserves have fallen for the last few weeks mostly due to the RBI’s aggressive intervention in the currency market to prevent the slide of the rupee. It could prevent its fall to the 80 mark against the dollar.  

But the domestic currency tanked to new lows last week and then also this week after the US Federal Reserve took hawkish measures to increase its interest rate to fight inflation. Just not the rupee, currencies of most emerging markets are in a state of chaos. 

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But the governor in his statement on Friday highlighted that the movement of the Indian rupee has been orderly compared to most other countries.  

He added that till September 28, the US dollar appreciated 14.5 per cent this year, causing turmoil in currency markets across the world. In comparison, the rupee has depreciated by 7.4 per cent against the US dollar. 

Reiterating the central bank’s position on the currency, the governor said that the rupee is a freely floating currency and its exchange rate is market determined. The RBI does not have any fixed exchange rate in mind. It intervenes in the market to curb excess volatility and anchor expectations, Das said. 

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He noted that net foreign direct investment has improved to $18.9 billion in April-July quarter from $13.1 billion a year ago. The foreign portfolio investors have also returned to the domestic market with a net inflow of $7.5 billion in the months from July to September after an outflow for nine consecutive months. 

Mentioning other external indicators, like the external debt to GDP ratio, net international investment position to GDP ratio, ratio of short-term debt to reserves, he said that India’s debt service ratio shows lower vulnerability, which is better off than other peers in the picture.  

“In fact, India’s external debt to GDP ratio is the lowest among major EMEs. In the final analysis, we remain confident of meeting our external financing requirements comfortably,” he said.