The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said that the recent interventions of the regulator to hold the free fall of the rupee were reactive in nature instead of a structural change.
He said that the measures were aimed at curbing excessive volatility and not at targeting any specific level of the rupee. The governor assured that the curbs will not remain forever.
The RBI had recently put curbs on speculative activity in the domestic currency. Last week, the RBI barred banks from offering rupee non-deliverable forwards to resident and non-resident clients.
It also restricted companies from rebooking cancelled forward contracts. The banking regulator had earlier put a limit of $100 million on net open rupee positions of banks.
The rupee has fallen over 1.5 percent since the start of the war in West Asia. At one point in time, the local currency had declined by about 4.3 percent to close at 95 a dollar.
When asked about the RBI’s recent measures to contain the weakening of the currency, Malhotra said, “We did notice that in the last few days of the month of March, there was heightened volatility in the forex market. We saw that positions were being built up, leading to arbitrage positions between the non-deliverable forwards markets and deliverable markets.”
“In normal times, these linkages are important for efficient price discovery, and that’s why it has been our endeavour to widen, broaden, and make these markets more liquid. But when there is excessive volatility, when there is excessive building up of positions, which only increases volatility and perhaps does not help in price discovery, such measures are taken,” the governor clarified.
He said that such steps are reactions to specific market movements and should not be considered a structural change.
“They are not signaling any structural change. We stand committed to the long-term development, broadening, and deepening of markets and to the internationalisation of the rupee,” he said.
The governor assured that the recent measures were not going to remain forever.
The Monetary Policy Committee on Wednesday unanimously decided to keep the repo rate unchanged at 5.25 percent.
