RBI defends currency strategy, says interventions aim to shield economy from global risks

India is striving to maintain a stable currency to protect its economy from global spillovers and financial stability risks, the Reserve Bank of India (RBI) said. India' central bank said that the value of the rupee is determined by market demand and supply, reflecting the broader macroeconomic fundamentals of the country. These observations were made in the central bank's monthly bulletin released on Wednesday, co-authored by officials including Deputy Governor Michael Patra.

The statement addresses criticism that the RBI has excessively intervened in the foreign exchange market to artificially stabilize the rupee. To counter significant volatility, the RBI has utilised its nearly $700 billion foreign exchange reserves, ensuring that the rupee remains one of the least volatile currencies globally.

“Forex market interventions need to be adjusted for the economy’s size to draw a fair conclusion,” RBI officials wrote in the bulletin. The monetary authority's net interventions averaged 1.6% of gross domestic product between February and October 2022, compared to 1.5% during previous, less severe crises, officials noted.


The RBI reiterated Governor Shaktikanta Das's frequent assertion that India’s reserves are accumulated only after fulfilling all current and capital financing requirements, serving as a shield for challenging times.

The central bank’s exchange rate policy has not harmed India’s trade competitiveness, with the country now focusing on enhancing the quality and technology of its exports, rather than relying on “artificial props such as from an undervalued exchange rate,” they said.

The Indian rupee has fallen 1.5% against the dollar this year, marking the smallest decline among Asian currencies.

On the currency’s medium-term outlook, the RBI “remains bullish as global turbulence subsides and the innate strength of the macro-fundamentals reasserts itself.”

(with Bloomberg inputs)