The Reserve Bank of India (RBI) is committed to keep the rupee stable and is in the market on an ongoing basis to defend the local currency against volatility, Michael Patra, Deputy Governor, has said.

Addressing an event organised by the PHD Chamber of Commerce and Industry in the capital, Patra said that there are indications that inflation is peaking in the pandemic-hit economy, which is faced with headwinds from global geo political turmoil, de-globalisation and surge in commodities and crude oil prices. He asserted that the central bank was keen to ensure that India does not get into a situation of “runaway inflation” and would look to keep the “genie (inflation) in the bottle”. 

RBI will stand for stability of rupee: Deputy Governor Patra
Video Credit: Video: Kamal Narang

He had indicated that RBI is most likely to be faced with the situation of consumer price index-based inflation surpassing the outer bound limit of 6 per cent for three consecutive quarters, requiring it to write a letter to the government explaining the reasons for such a breach. The RBI Deputy Governor was hopeful that the required monetary policy actions will be moderate than what is being adopted by central banks globally. He also highlighted that the accountability envisaged for the central bank under the inflation targeting framework has raised the credibility of monetary policy.

Power of $600 bn forex reserves

Commenting on the rupee stability, Patra highlighted that, as of now, the rupee depreciation in recent months is one of the least in the world. “That is the power of 600”, Patra asserted alluding to India’s current foreign exchange reserves of about $600 billion.

“We don’t know where the rupee will be. We don’t even know where the dollar will be. Even the US Fed does not know where dollar will be. Be sure for one thing — RBI will stand for rupee stability. We are doing it on an ongoing basis even as I speak. We are there in the market. We will not allow disorderly movements in the rupee. We have no level in our mind. But we will not allow jerky movements. Let it be widely known that we are in the market defending rupee against volatility. I must tell you we don’t have any particular level. All that we want is an orderly movement”, Pant said.

Year of MSMEs

For the RBI, the current year will be year of MSMEs, Patra added to the cheer of an audience who were mostly representing MSMEs. He highlighted that the RBI was working to improve the access and cost of credit to MSMEs. Patra also said that RBI would urge big businesses and government departments to ensure prompt payments are made to MSMEs as regards their outstanding receivables.

The PHDCCI members wanted Patra to indicate where interest rates are headed and whether they should be prepared for another 100 basis point hike in policy rates in the coming months. Patra, however, parried the question, noting that it would not be right to ask a central banker as to where interest rates are headed.