Former Reserve Bank of India governor D Subbarao on Wednesday said strong forex reserves in India will not save it from any global shocks, but will help manage it.
Speaking at a webinar organized by CRISIL Ratings, he said there is a misconception in India that since the country has a strong foreign exchange reserves, it is untouched by global shocks.
“We are not untouched by global shocks. Global shocks will still be felt here. Our forex reserves will help us manage those shocks. Therefore, forex reserves do not protect us from building up of pressure, they protect us. There are pressure managements,” Subbarao said.
As of 1 October 2021, the country’s foreign exchange reserves stood at USD 637.477 billion.
He added that whenever there is a normalization of monetary policy in advanced economies, which will lead to large capital outflows, the RBI can manage exchange rate volatility through interventions in the foreign exchange market.
“When the Fed (Federal Reserve) returns to normal, I think the RBI will have to intervene in the forex market to manage volatility. I don’t think they should use a monetary policy instrument unless very strong Don’t be pressured, which I don’t expect,’ Subbarao said.
He said that compared to 2013, when similar monetary policy normalization was done by advanced economies, today India is well prepared to deal with any external shocks.
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