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New RBI Governor Signals Flexible Stance on Rupee

New RBI Governor Signals Flexible Stance on Rupee

Reserve Bank of India (RBI) Governor Sanjay Malhotra, who assumed office in December, is taking a nuanced approach to managing the rupee, signaling a willingness to allow greater flexibility while intervening to curb volatility. According to insiders, Malhotra has engaged extensively with RBI departments ahead of his first monetary policy meeting in February, showing a keen interest in the central bank's currency intervention strategies.

Unlike his predecessor, Shaktikanta Das, who maintained tight control over the rupee, Malhotra appears more open to allowing the currency to move in line with regional peers. Under Das, the rupee’s volatility reached record lows, supported by India’s $700 billion foreign exchange reserves.

Since Malhotra’s appointment, the rupee has depreciated 2% against the dollar, with one-month implied volatility hitting a year-high. On Monday, the rupee briefly touched a record low of 86.7025 per dollar before recovering slightly to 86.5875. Rising oil prices and a strong dollar, exacerbated by sanctions on Russian energy, have added pressure.

The RBI's recent policy adjustments reflect exporters' concerns about the rupee's overvaluation, which had risen to an inflation-adjusted trade competitiveness level of 108.14 in November, suggesting an 8% overvaluation. Allowing the rupee to depreciate addresses this imbalance while keeping India’s import-heavy economy in mind.

The central bank remains vigilant about speculative pressures and has pledged to intervene significantly if necessary. While the rupee may be allowed greater depreciation, the RBI anticipates some stability following the inauguration of US President-elect Donald Trump, potentially alleviating market volatility.

Malhotra’s balanced approach marks a departure from rigid controls, focusing instead on managing volatility and enhancing trade competitiveness, while safeguarding India’s economic resilience amid external challenges.

New RBI Governor Signals Flexible Stance on Rupee

New RBI Governor Signals Flexible Stance on Rupee
Reserve Bank of India (RBI) Governor Sanjay Malhotra, who assumed office in December, is taking a nuanced approach to managing the rupee, signaling a willingness to allow greater flexibility while intervening to curb volatility. According to insiders, Malhotra has engaged extensively with RBI departments ahead of his first monetary policy meeting in February, showing a keen interest in the central bank's currency intervention strategies.

Unlike his predecessor, Shaktikanta Das, who maintained tight control over the rupee, Malhotra appears more open to allowing the currency to move in line with regional peers. Under Das, the rupee’s volatility reached record lows, supported by India’s $700 billion foreign exchange reserves.

Since Malhotra’s appointment, the rupee has depreciated 2% against the dollar, with one-month implied volatility hitting a year-high. On Monday, the rupee briefly touched a record low of 86.7025 per dollar before recovering slightly to 86.5875. Rising oil prices and a strong dollar, exacerbated by sanctions on Russian energy, have added pressure.

The RBI's recent policy adjustments reflect exporters' concerns about the rupee's overvaluation, which had risen to an inflation-adjusted trade competitiveness level of 108.14 in November, suggesting an 8% overvaluation. Allowing the rupee to depreciate addresses this imbalance while keeping India’s import-heavy economy in mind.

The central bank remains vigilant about speculative pressures and has pledged to intervene significantly if necessary. While the rupee may be allowed greater depreciation, the RBI anticipates some stability following the inauguration of US President-elect Donald Trump, potentially alleviating market volatility.

Malhotra’s balanced approach marks a departure from rigid controls, focusing instead on managing volatility and enhancing trade competitiveness, while safeguarding India’s economic resilience amid external challenges.

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