Mumbai Reserve Bank of India (RBI) Deputy Governor Michael Patra on Friday confirmed that the central bank is intervening in the market to protect the rupee, though it is not targeting any specific level for the domestic currency.
When RBI intervenes in the foreign exchange market, it sells the dollar and buys the rupee to prevent unilateral movement in the domestic currency. The central bank’s foreign exchange reserves stood at $596.46 billion on June 10.
We will stand for its sustainability and we are doing it. We are in the market and we will not allow disorderly movement of rupees. We don’t have a level in mind, but we won’t allow jerky movements. It is certain,” Patra said at an event organized by PHD Chamber of Commerce and Industry.
The rupee’s depreciation level 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 rupee continued to weaken against the dollar following aggressive rate hikes by the US Federal Reserve. The domestic currency closed at an all-time low of 78.32 against the dollar on June 23, and is down more than 5% in 2022.
Several factors have pulled the rupee down: foreign portfolio investors’ exit, rising crude oil prices and a stronger dollar. The currency is expected to reach $80 by the end of 2022. Bank of America Securities expects the rupee to touch $81 by the end of the year.
Patra also hoped that monetary policy action would be more lenient than anywhere else in the world, and that the RBI would be able to bring inflation back on target within a period of two years. The central bank has a flexible inflation target band of 2-6%.
Earlier this month, the RBI increased the repo rate by 50 basis points, the second such hike in two months. It had first raised rates by 40 basis points in an unscheduled meeting in May. It raised the inflation forecast for this fiscal year to 6.7% from its earlier estimate of 5.7 percent.
“There are signs that inflation may be peaking. As monetary policy works in the economy and inflation returns to the tolerance band by Q4 of 2022-23, it will be a game of baseline scenario,” he said. “Inflation easing could happen even more quickly. and fast. The key in these extraordinary times is the change in inflation direction – not at its level,” he said.
Patra also said that the central bank is working to improve access and cost of credit to small businesses. The central bank is also working on a portal to ease the credit cycle, he said, adding that the RBI will monitor the portal.