The Reserve Bank of India (RBI) Governor Shaktikanta Das on Saturday strongly defended the central bank’s intervention on the rupee.

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Justifying the use of forex reserves, he said; “We didn’t pick the reserves just to keep it as a show-piece. We picked it only for this rainy day."

"When it rains, you have to pick up your umbrella and use it. The RBI is not using the forex reserves indiscriminately. Our objective is to anchor market expectations,” he said at the HT Leadership Summit in New Delhi.

“Even at this point in time, our reserves are very comfortable. If the RBI doesn’t intervene, the market will think we are indifferent and agnostic to the INR (rupee) fall. We will have to anchor expectations in both directions,” he added.

The RBI governor said that the apex bank’s intervention is impacted by day to developments. “We also study what kind of inflows and outflows are happening on a day-to-day basis.”

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Indian Rupee appreciated by 1 rupee (from 81.80 it came down to 80.80) on Friday after US CPI inflation data was out. Statements from advanced countries impact the market, he said.

“Many of the inflows and outflows are easier to anticipate. However, there are also some unanticipated, unexpected flows, both inward as well as outward. The present underlying concern of the RBI is to prevent excessive currency volatility. For this, the first objective is to ensure orderly movement of INR on both sides,” he said.

“There were heavy inflows during the COVID-19 pandemic years. The RBI built up $240 billion in reserves during 2020 and 2021. We also knew that reserves coming in at great speed will flow out at some stage. RBI had to be prepared for a reversal of the situation about the forex,” Das said.

“We were just picking up dollars in the market and we build up our reserves because we knew that the reserves which are coming with great speed will flow out at some stage and we have to be prepared for that. And the reserves went up from $400 billion $642 billion, which was the peak.”

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"Now, we built up this $240 billion because we knew that there will be a reversal of the situation where we will have to provide dollars to the market. And at one point in time, there was no dollar supply in the market. It was only the Reserve Bank that was supplying the dollars. So that is why we started intervening in the market which means we were selling dollars."

A stable exchange rate regime is at the core of the financial stability of the system. That is the principal factor. Because, if you have disorderly movement of your currency it will impact importers, exporters, and investors. It will also lead to disruptions, which ultimately will result in financial sector instability, he said.