According to the governor of the Reserve Bank of India, Mr Sanjay Malhotra, the bank is fully equipped to undertake any measure in order to maintain stability and smooth running of India’s foreign exchange market. This comes after the continuous turbulence in international markets caused by geopolitics, changing expectations from interest rates, and uncertainty on international trade and oil prices. Speaking on the current situation in the foreign currency market, the RBI governor reiterated that the Reserve Bank is vigilant and ready to intervene when necessary in order to limit the volatility of the Indian Rupee. Changes in India’s currency markets have been observed from time to time through price variations based mainly on fluctuations in the sentiment among foreign investors, the appreciation in the value of the US dollar, and partially due to changes in foreign capital inflows.
Emerging economies have faced even more challenges in terms of facing pressures owing to uncertainty concerning global growth and the policies adopted by major central banks regarding monetary management. According to some economists, the RBI plays an important role in the foreign exchange markets, which helps in building confidence among foreign investors as well as ensuring the overall stability of the economy. The central bank uses various methods such as selling US dollars, liquidity management, and the use of reserves, in order to offset the effect of volatility in the rupee currency with respect to other foreign currencies. Having built up sufficient reserves of foreign exchange has also helped India in creating a buffer to protect the country from experiencing any economic shock from external sources.
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Economists feel that such reserves can prove to be very useful in enabling the central bank to deal with any possible disturbance to the functioning of the currency. The governor further emphasised the significance of tracking global trends very carefully, especially regarding oil prices and geopolitical issues, since they can play a very significant role in determining currency movements and inflation trends, especially in economies which are reliant on imports like India. According to industry experts, the stability of foreign currency markets is critical for companies engaged in international business transactions. Extreme changes in foreign currencies can have a negative impact on import costs and exports, as well.
