The Indian rupee has been touching new lows against the US dollar in the last few months. In calendar year 2022, it has depreciated by over 6 per cent. In an annual banking conference organised by the Bank of Baroda, RBI Governor Shaktikanta Das has put up a strong defence. Let's look at each of the points he made.
Stronger currencies, too, are depreciating
The spillover from the global monetary tightening has been impacting all the currencies. The historically high inflation in the US has been pushing the interest rates up. "Even the Japanese Yen, the Euro and British Pound Sterling have not been spared," said Das. In fact, foreign portfolio investors are also moving to safe haven assets.
Strong domestic financials
Das has listed strong domestic financials and macros as a reason for the rupee holding up well against the US dollar as compared to most advanced and emerging market peers. Das said the current account deficit is modest. Inflation is stabilising. Financial system is well capitalised and sound. External debt to GDP is declining. And forex reserves are also at an adequate level.
RBI's dollar tap is open
"You buy an umbrella to use when it rains," said Das. The RBI has been regularly supplying dollars to the market to meet the shortages. In fact, the RBI's forex reserves have fallen from $640 billion in September last year to less than $600 billion. "After all, this is the very purpose for which we had accumulated reserves," said the Governor.
Outstanding ECBs are adequately hedged
Only 44 per cent of the $180 billion in external debt is currently unhedged. There are experts who are concerned about the unhedged portion. But Governor Das said that in some cases of unhedged portion, there is a natural hedge because of exports or dollar earnings. "It is necessary to look at the unhedged portion in the proper context," pointed out Das.
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