RBI to continue interventions in forex market, despite tight liquidity
Subscribe to enjoy similar stories. Tight liquidity will not bind the Reserve Bank of India’s (RBI) hands in intervening to curb excessive rupee volatility in the forex market, said a senior official aware of the thinking at the central bank. "Liquidity will be managed and so will excessive currency volatility," he said.
"We have the experience and the tools to manage both." His comments come in the wake of a perceptible shift in the RBI's defence of the rupee, as observed by market participants. During the earlier regime under governor Shaktikanta Das, RBI held the currency within a narrow band. But in the past two weeks the rupee has been allowed to slide more freely.
For instance, while the dollar index—greenback versus six currencies like Swiss franc, euro and yen—appreciated by 7% last year to 108.48, the rupee dipped just 2.88% to 85.61. In the month through 15 January since governor Sanjay Malhotra took the helm at the central bank, the rupee has depreciated by 0.87% to 86.36 against the dollar index's 0.56% appreciation to 109.09. "There is a change in the way the volatility is being managed, which is visible in the past two weeks, where the local unit has been freed from a narrow range it was constricted to under the previous dispensation," said a senior treasury official at a private sector bank.
The official said the very aggressive positioning of the RBI on the offshore market (NDF) was likely to be eased, with transfers (of dollar) from the offshore to the onshore market gaining pace in the past two weeks. The central bank intervenes in the NDF market to manage rupee volatility without depleting a large amount of forex reserves until the maturity of the contract. “This is visible in a surfeit of dollar and a
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