MUMBAI: The RBI will continue to intervene in foreign exchange market despite being on the currency manipulator watchlist, governor Shaktikanta Das indicated on Saturday while delivering the Nani Palkhivala lecture here.
As per Das, given the uncertain global economic environment, emerging markets have no recourse but to build their forex reserve buffers even at the cost of being included in currency manipulators list or in the monitoring list of US treasury. His statement comes in the wake of the US adding India to its currency watchlist for intervening to support the dollar despite the country turning a current account surplus. RBI added over $100bn to its reserves in 2020 after negative interest rates in several global markets resulted in global capital flooding Indian markets.
Das warned that while the medium-term growth outlook is positive, domestic financial markets must be prepared for sudden stops and reversals, should the global risk aversion factors take hold. Going forward, the bank’s focus would be on ensuring the stability of banks and other lenders, external sector stability and fiscal stability. He urged the government to set up a roadmap for fiscal discipline. “It becomes imperative that fiscal roadmaps are defined not only in terms of quantitative parameters like fiscal balance to GDP ratio or debt to GDP ratio but also in terms of measurable parameters relating to the quality of expenditure, both for center and states,” he said. Pointing out that the rush of capital into Indian markets is an outcome of accommodative liquidity conditions created by regulators globally, Das said the rise in forex reserves are now 18.4% of import cover and 236% of short-term debt.
During the current crisis, RBI’s response has been to mitigate the impact of the pandemic through loan moratorium and standstill arrangements.