Reserve Bank of India (RBI) Governor Shaktikanta Das insisted On Friday, when the central bank was committed to ensure that the rupee finds its level in line with its fundamentals and does not target any specific level for the rupee, it will not allow any volatility or volatility in the currency’s exchange rate. Will intervene decisively to overcome the speed. ,
“I would like to reiterate that we do not have any specific level of rupee in our mind, but we want to ensure its orderly development and we have zero tolerance for volatile and bumpy movements,” said Mr. Das, referring to RBI’s stance. Said while doing The recent depreciation of the rupee against the US dollar while addressing a banking conference in Mumbai.
saying that Indian Rupee With India’s “underlying fundamentals being strong, resilient and intact” it had a “good hold relative to both advanced and emerging market peers”, Mr Das said, adding that the RBI’s actions, including measures to encourage inflows, ensured that The trick was Rs. Relatively sleek and organized.
“By avoiding sudden and volatile changes, we have ensured that expectations remain high and the forex market operates in a stable and fluid manner,” he added.
Underlining the need to recognize the effects of the pandemic along with the tightening of global monetary policy, the geopolitical situation, the still rising commodity prices of crude oil, Mr Das said: That reserve currencies such as the Japanese yen, the euro and the British pound sterling have also not been spared.
“Portfolio funds are selling assets and running for safe havens. Emerging market economies (EMEs) are particularly affected by capital outflows, currency depreciation and reserve drawdowns, making macroeconomic management complex in these countries,” he said.
Mr Das said the impact of these massive spillovers on India was relatively minor.
Emphasizing that the economic recovery is gradually consolidating, he said, “The current account deficit is modest. Inflation is stabilizing. The financial sector is well capitalized and strong. External debt to GDP ratio is declining.” The foreign exchange reserves are sufficient.”
The Governor said that in recognition of the fact that there was a real shortfall in the supply of foreign exchange relative to the market demand due to import and debt servicing requirements and portfolio outflows, the RBI was supplying dollars to the market to ensure that adequate was. forex liquidity.
“After all, this is the purpose for which we accumulated reserves when capital flows were strong. And, might I add, you buy an umbrella to use when it rains!” They said.
Highlighting that a ‘major part’ of the outstanding external commercial borrowings was effectively hedged, he said 44% or 79 billion of the outstanding ECBs of $180 billion, as per RBI’s latest Financial Stability Report Dollar hedging was not done.
This included approximately $40 billion in liabilities of public sector companies – primarily in the petroleum, railway and power sectors – that had assets with a natural hedge character. Also, being public sector entities, their foreign exchange exposure – if any – can be absorbed by the government, Mr Das said.
“The ECB outstanding of the remaining $39 billion represents 22% of the total ECB. It even includes borrowings from companies that have a natural hedge, that is, earnings in foreign currencies. This would leave a very small part of the total outstanding ECBs that are really unhedged,” he observed.
“Corporate entities ultimately face a trade-off: if they fully hedge their foreign exchange exposure, the cost of borrowing increases and the benefits of cheap borrowing in foreign currency are lost. On the other hand, unless they hedge, debt repayments may increase when exchange rates are under pressure,” he said.
This has given rise to the concept of the optimal hedge ratio, which calculates the ratio of hedging that minimizes the variance of a portfolio.
“For India, our internal research estimates that the optimal hedging ratio is 63%. Keeping in view the natural hedge and risk of public sector companies, the condition of optimum hedge ratio in terms of ECB’s stock in India’s external debt is comfortably satisfied,” he explained.
Mr Das also said that retail inflation is peaking and the Monetary Policy Committee (MPC) in its upcoming meeting in August will review the inflation estimate of 6.7% for the financial year ending March 2023, the Press Trust of India reported. .