India's foreign exchange assets are down $29.2 billion since March 31 and $57 billion in 2022. The Reserve Bank in the recent past has been offloading its forex reserves to support the rupee. In fact, in the past month, itself the fall is around $22 billion.

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Now. days after the domestic currency breached the 80-level against the dollar, Reserve Bank of India Governor Shaktikanta Das, when asked how the selling will impact India's reserves, said, "You buy an umbrella to use when it rain."

Das further added that India's central bank has zero tolerance for volatility and therefore is taking action for smoother movement of the Indian currency and added that the rupee is holding up relatively well when compared to the global currencies.

Speaking at an event organised by the Bank of Baroda, he said that the RBI has been supplying US dollars to maintain an adequate supply of liquidity in the market. Das also added that the RBI does not target a particular level for the currency.

He maintained that RBI's inflation targeting framework has worked well since adopting it in 2016 and stressed that the same should continue in the interest of the economy. "We should not shift the goal posts to suit the immediate requirements," Das said.

Also read: View: Rupee could sink to 82 vs US dollar in short term

He also said that imported inflation is a challenge because India is a key importer of commodities and that the central bank is taking necessary steps to control it.

"We are living in turbulent times. The continuing war in Europe and the pandemic have rendered the global macroeconomic outlook highly uncertain. Countries are facing unexpectedly high inflation including food inflation, supply chain disruptions and demand-supply imbalances in product and labour markets."

"Commodity prices have eased somewhat from their June high, but remain elevated. 2 Higher interest rates in the US along with increased risk aversion among global investors have fuelled safe-haven demand and strengthening of the US Dollar," he added.

The Governor, who heads the six-member monetary policy committee, said that the body has used its flexibility to tolerate higher inflation.

Commenting on the current state of the Indian economy amid global uncertainty, he said, "In such an environment, the Indian economy remains relatively better placed, drawing strength from its macroeconomic fundamentals."

Also Read: Asian Development Bank cuts India GDP forecast for FY23 to 7.2% on Covid, Ukraine war impact

"The financial system is well-capitalised, asset quality indicators have improved, balance sheets are stronger, and banks have returned to profitability. We are also seeing a healthy pickup in credit demand. The external sector is well-buffered to withstand the ongoing terms of trade shocks and the portfolio outflows."

The RBI governor also urged banks, as a sign of good governance, to maintain their key ratios like capital buffers above the mandated levels.

According to him, RBI will issue relevant guidelines on digital lending soon. The credit growth in the economy has touched 14 percent.

Speaking about the banking sector, Das said that the banking sector is going through a period of churning. Banks are expected to be permanent institutions after obtaining license From RBI, he added and also stated that banks are responsible for ensuring robust governance.

First Published:Jul 22, 2022 4:47 PM IST