RBI Report: Reserve Bank of India’s efforts came in color, the rate of reduction of foreign exchange reserves slowed down
Reserve Bank of India’s intervention has reduced the rate of depletion of foreign exchange reserves during currency market volatility. This is stated in the study of RBI officials. The study covers the current fluctuations caused by the Russo-Ukraine war since 2007. The central bank has a stated policy of interference in the foreign exchange market. The central bank intervenes if it sees volatility in the market. However, the Reserve Bank never gives a target level for the currency.
The study by Saurabh Nath, Vikram Rajput and Gopalakrishnan S of the RBI’s Department of Financial Markets Operations said that during the global financial crisis of 2008-09, reserves were down by 22 per cent. It has decreased by only six percent during the volatility generated after the Ukraine-Russia war. The study said that the views expressed herein are those of the authors and do not necessarily reflect the views of the central bank.
The Reserve Bank has been successful in achieving its intervention objective on foreign exchange reserves. This is reflected in the low rate of depletion of foreign exchange reserves. According to the study, in absolute terms, the global financial crisis of 2008-09 resulted in a decline of US$ 70 billion in reserves. Whereas during the Kovid-19 period, it decreased by only $ 17 billion. At the same time, due to the Russo-Ukraine war, there has been a decrease of $ 56 billion till July 29 this year.
The major factors affecting volatility include interest rates, inflation, government debt, current account deficit, dependence on commodities, political stability as well as developments at the global level, the study said.
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