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MUMBAI : Reserve Bank of India (RBI) deputy governor Michael Patra on Friday confirmed that the central bank is intervening in the market to defend the rupee, though it is not targeting any specific level for the domestic currency.
When RBI intervenes in the forex market, it sells dollars and buys rupees to prevent one-way movements in the domestic currency. The central bank’s forex reserves stood at $596.46 billion as on 10 June.
“We will stand for its stability and we are doing it. We are there in the market and we will not allow disorderly movement of the rupee. We have no level in mind, but we will not allow jerky movement. That is for certain," Patra said at an event organized by the PHD Chamber of Commerce and Industry.
The level of depreciation of the rupee is one of the lowest in the world, said Patra, who also heads RBI’s monetary policy department, and is a member of the monetary policy committee (MPC).
The rupee has been weakening against the dollar steadily after aggressive rate hikes by the US Federal Reserve. The domestic currency closed at an all-time low of 78.32 against the dollar on 23 June, and is down more than 5% in 2022.
Multiple factors have pulled the rupee down: exit of foreign portfolio investors, rising crude oil prices, and a strong dollar. The currency is widely expected to touch 80 to the dollar by the end of 2022. Bank of America Securities expects rupee at 81 to the dollar by year-end.
Patra also expressed the hope that monetary policy actions will be more moderate than elsewhere in the world, and RBI will be able to bring inflation back to target within a two-year time span. The central bank has a flexible inflation target band of 2-6%.
Earlier this month, RBI raised the repo rate by 50 basis points, the second such increase in two months. It had first raised rates by 40 basis points at an unscheduled meeting in May. It had also raised the inflation projection to 6.7% for this fiscal from its earlier forecast of 5.7%.
“There are indications that inflation may be peaking. As monetary policy works through into the economy and inflation falls back into the tolerance band by the fourth quarter of 2022-23, it will be the playing-out of the baseline scenario," he said. “The easing of inflation could be even sooner and faster. The key is the direction of change in inflation—not its level—in these extraordinary times," he added.
Patra also said that the central bank is working to improve access and cost of credit to small businesses. The central bank is also working on a portal to ease the credit cycle, he said adding that the RBI will monitor the portal.