Skip to main content

Intervention in currency market to continue:RBI

By
The Reserve Bank of India (RBI) will continue to intervene in the currency market, as volatility in exchange rate can impact some of the country’s institutions, which might not be as robust as those in developed markets.
“There is a school of thought that says: Let the exchange rate move wherever it will,” RBI governor Raghuram Rajan said at the Inaugural Kotak Family Distinguished Lecture held at Columbia Law School in New York.
“That’s something we could do,” Rajan said. “But in emerging markets, with institutions not as strong as industrialised countries, you find there are collateral effects of both the capital moving in and going out.”
To prevent such collateral damage, the central bank will intervene in the currency market when there is a sustainable risk in global markets and the country sees a flood of capital coming in, he said.
The exchange value should reflect the country’s underlying fundamentals of trade and services.
“We really don’t want the currency to move only as result of capital flows... We would like it to be more focused on the underlying fundamentals of trade and services.”
However, the banking regulator never prevents the currency from finding its own value, but it benefits from the volatility by accumulating reserves, Rajan said. “We let the exchange rate move. We never stand in the way, but we pick up some as flows come in.”
India’s foreign exchange reserve stood at $359.9 billion as on April 8 as RBI picked up foreign exchange in the process of intervention.  The RBI governor had recently said the inflation targeting framework pursued by the central bank would ensure “volatility in the currency would be a thing of the past”. Since the currency level is determined by inflation differential between two countries, predictable inflation path in a fund-recipient country eliminates the chance of volatility and thus attracts capital. 
In addition, the central bank said in its monetary policy on April 5 that it would first prefer to buy foreign currency assets to manage liquidity. Rajan reiterated that the central bank was still in an accommodative monetary policy stance. RBI has so far reduced its policy rates by 150 basis points (bps), latest by 25 bps on April 5.
“As evidence of inflation and monsoon build one way or the other, this will give us more information about the direction of monetary policy,” said Rajan.
Business Standard New Delhi,20th April 2016

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more