RBI’s plan to strengthen the rupee!
Reserve Bank Deputy Governor T. Ravi Shankar on Wednesday said the steps taken on the rupee front were temporary and reiterated his commitment towards internationalization of the currency in the long run. However, these senior officials did not appear to give any concrete answer as to when the central bank would fully reverse the measures taken on March 30 and April 1, which it had taken in response to excessive speculation in the currency market—which was creating an artificial shortage of the US dollar. It is noteworthy that earlier this week, RBI had partially withdrawn some of the steps taken on April 1 on rupee derivatives. Under this, authorized dealers were allowed to re-offer ‘non-deliverable derivative contracts’ linked to INR to resident or non-resident users.
Will internationalize the rupee
When asked by when the $100 million limit on ‘net open positions’ would be lifted, Shankar said the RBI is committed to creating a single global market for the rupee-dollar and internationalization of the rupee in the long run. The veteran central banker said whatever was done was to deal with a temporary phenomenon that had caused huge market fluctuations. Once that situation is dealt with, we will return to our normal functioning.
Will depend on market strength
He said that our idea is that any user anywhere in the world who has any exposure to the rupee can use any of the products available. When asked if the RBI would take similar steps in the future, Shankar clarified that the steps taken last month were due to excessive speculation and not due to the domestic currency strengthening or weakening against the US dollar. Shankar said that whether the value of currency will increase or decrease in future will depend on market forces, which are governed by the equations of demand and supply. He further said that the central bank intervenes only when it sees excessive or destabilizing fluctuations in the market.
The tension still continues
Noting that geopolitical tensions are still ongoing, when asked if there are plans to take any further steps for relief, Shankar said the RBI will always take such steps as are necessary to meet its objectives, ensure smooth functioning of the markets and better functioning of the economy. If any stress arises at any point in the economy, as a regulator, as an institution responsible for keeping the market stable, we will do whatever we have to do. He also reminded everyone of the steps taken during the Covid-19 pandemic.
