RBI's Forex Stance: Curbing Volatility, Not Targeting Rupee Level

The RBI has reaffirmed its exchange rate policy, stating intervention is only to curb excessive volatility and not to target a specific rupee level. This follows recent significant fluctuations in the rupee against the US dollar.

The Reserve Bank of India on Wednesday reiterated that its intervention in the foreign exchange market is aimed solely at curbing excessive volatility and not at targeting any specific level of the rupee. Speaking during the monetary policy announcement, RBI Governor, Sanjay Malhotra said, "Despite the stronger macroeconomic fundamentals, the Indian rupee in the last financial year depreciated more than average in the previous year.... our exchange rate policy remains unchanged. Specifically, intervention in the foreign exchange market is aimed at smoothing excessive and disruptive volatility without targeting any specific level or band of price for the exchange rate."

The statement comes at a time when the Indian rupee has witnessed significant fluctuations in recent weeks. The rupee was trading at around 91 per US dollar at the beginning of March but saw heightened volatility during the month, breaching the 95 mark against the dollar at one point. However, the currency has since stabilised and is currently trading at around 92.5 per US dollar.

Exchange Rate Policy Reaffirmed

The RBI Governor noted that despite stronger macroeconomic fundamentals, the rupee depreciated more than the average seen in the previous year during the last financial year. Reaffirming the central bank's stance, he said the exchange rate policy remains unchanged and is aligned with the long-standing principle of a market-determined currency.

He emphasised that the RBI does not aim to defend any particular level of the rupee but intervenes only to prevent excessive and disruptive movements that may not be justified by economic fundamentals.

Focus on Orderly Market Conditions

The central bank also highlighted that it will continue to act judiciously to ensure that volatility does not lead to self-fulfilling expectations that could further amplify currency movements. The remarks indicate that while the RBI remains watchful of sharp fluctuations in the rupee, it is not attempting to artificially control its value. Instead, the focus remains on maintaining orderly market conditions and preventing undue volatility, especially in the backdrop of global uncertainties and geopolitical developments that have impacted currency markets.

The recent cooling of the rupee from its peak volatility levels suggests that market conditions have stabilised to some extent, even as the RBI continues to monitor the situation closely. (ANI)

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