RBI protects the rupee from high volatility: Patra
Bombay : Reserve Bank of India (RBI) Deputy Governor Michael Patra confirmed on Friday that the central bank is intervening in the market to defend the rupee, although it is not targeting any specific level for the national currency.
When RBI intervenes in the foreign exchange market, it sells dollars and buys rupees to avoid one-way movements of the national currency. The central bank’s foreign exchange reserves stood at $596.46 billion as of June 10.
“We will defend its stability and we do. We are there in the market and we will not allow a disorderly movement of the Rupee. We don’t have a level in mind, but we won’t allow jerky movements. That’s for sure,” Patra said at an event hosted by the PHD Chamber of Commerce and Industry.
The level of rupee depreciation is one of the lowest in the world, said Patra, who also heads the RBI’s monetary policy department and is a member of the monetary policy committee (MPC).
The rupiah has steadily weakened against the dollar after aggressive rate hikes by the US Federal Reserve. The national currency closed at an all-time low of 78.32 against the dollar on June 23 and is down more than 5% in 2022.
Multiple factors dragged the rupiah down: outflow of foreign portfolio investors, rising crude oil prices and a strong dollar. The currency is widely expected to touch 80 to the dollar by the end of 2022. Bank of America Securities expects the rupee to be at 81 to the dollar by the end of the year .
Patra also expressed hope that monetary policy actions will be more moderate than elsewhere in the world and that RBI will be able to bring inflation back to its target within two years. The central bank has a flexible inflation target range of 2-6%.
Earlier this month, RBI raised the repo rate by 50 basis points, the second such increase in two months. It had first raised rates by 40 basis points at an unscheduled meeting in May. It had also raised the inflation projection to 6.7% for this fiscal year from its previous forecast of 5.7%.
“There are indications that inflation could peak. As monetary policy trickles down to the economy and inflation falls back into the tolerance band by the fourth quarter of 2022-23, it will be the implementation of the baseline scenario,” he said. “The slowdown in inflation could be even sooner and faster. The key is the direction of the change in inflation – not its level – in these extraordinary times,” he added.
Patra also said the central bank was working to improve access and cost of credit to small businesses. The central bank is also working on a portal to facilitate the credit cycle, he said, adding that the RBI will monitor the portal.