NEW DELHI: Allaying the fear of depreciation of rupee, the Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said the Indian rupee is holding up well relative to both advanced and emerging market economies on account of strong, resilient and intact underlying fundamentals.
“The recovery is gradually strengthening. The current account deficit is modest. Inflation is stabilising. The financial sector is well-capitalised and sound. The external debt-to-GDP ratio is declining. The foreign exchange reserves are adequate,” Das said at Bank of Baroda Economics Conference. He highlighted the global grim situation in view of inflationary pressures, tighter external funding situation and financial stability challenges in many countries.
Meanwhile, the Governor recognised the fact that there was a genuine shortfall of supply of forex in the market relative to demand because of import and debt servicing requirements and portfolio outflows. He said the apex bank has been supplying US dollars to the market to ensure that there is adequate forex liquidity. In addition, Das stated that a considerable part of the outstanding external commercial borrowing (ECB) is hedged.
For India, as per RBI’s internal research estimates, the optimal hedging ratio is 63%. “Taking into account natural hedges and the exposure of public sector companies, the optimal hedge ratio condition is comfortably satisfied in the case of the stock of ECBs in India’s external debt,” he added. Following RBI’s actions, the movements of the rupee have been relatively smooth and orderly, as per Das.
“We will continue to engage with the forex market and ensure that the rupee finds its level in line with its fundamentals. I would like to reiterate that we have no particular level of the rupee in mind. “... but we would like to ensure its orderly evolution and we have zero tolerance for volatile and bumpy movements,” Das stated.