It is a difficult road ahead for RBI in these choppy international waters with a highly volatile exchange rate primarily affected by exogenous factors. RBI must sail through these troubled waters unscathed and bring the Indian economy out of its currency pangs
Amidst the current milieu of enduring stagflation, the uncertainty created by the war between Russia and Ukraine and the rise in interest rates in the US, the Indian currency depreciated to a level never seen before. On September 28, 2022, the rupee breached the level of Rs. 82 per dollar before recovering slightly on September 29, 2022, to settle at around Rs. 81 per dollar. In the current financial year, the rupee depreciated against the dollar by around 8 percent. Such a massive downfall in the rupee in a comparatively short period of 5-6 months has certainly put pressure on RBI. The incessant fall in the rupee entailed the RBI intervening in the foreign exchange market to arrest the volatility in the Indian currency. As per the WSS data, RBI has intervened in the FOREX market to the tune of $19 billion in the last month. Also, India’s FOREX reserves in July 2022 are sufficient to cover the import of around just seven months, as against 12 months a year ago.
[This article has been reproduced with permission from SP Jain Institute of Management & Research, Mumbai. Views expressed by authors are personal.]