While announcing the key repo rate hike, the Reserve Bank of India’s (RBI) Governor Shaktikanta Das on Friday said that the apex bank doesn’t have any fixed exchange rate amidst the depreciating rupee against the US dollar, and its market intervention is to curb excessive volatility. The RBI, after a three-day monetary policy meet, hiked the repo rate by 50 basis points (bps) at 5.90%, against the analysts' expectations of 30 to 35 bps in order to curtail inflation. This is the fourth time that RBI has hiked the key repo rate in recent months.
Governor Das’ statement comes at a time when the Indian currency is trading at a record low of ₹81 against the US dollar. On Friday, the rupee surged by 24 paise to ₹81.49 against the US dollar in early trade.
“The rupee is a freely floating currency and its exchange rate is market-determined. Second, the RBI does not have any fixed exchange rate in mind. It intervenes in the market to curb excessive volatility and anchor expectations,” Das said.
During the current financial year, the US dollar has depreciated 14.5% against other global currencies which has caused turmoil in the global markets. Das said, “The movement of the Indian Rupee (INR) has, however, been orderly compared to most other countries. It has depreciated by 7.4 per cent against the US dollar during the same period – faring much better than several reserve currencies as well as many of its EME and Asian peers.”
Notably, other global currencies such as the UK’s pound sterling have also depreciated to a record low. On Monday, pound depreciated by $1.035, prompting UK prime minister Liz Truss to announce the highest tax cut in England.
Meanwhile, reiterating RBI’s stance on depreciating rupee, Governor Das said that the rupee is a free-floating currency and its exchange rate is market-determined. He said that the current focus of RBI is on maintaining market confidence. “The overarching focus is on maintaining macroeconomic stability and market confidence. Our actions have helped in engendering investor confidence as reflected in the return of capital inflows since July. Over the medium term, the primacy of price stability embedded in our flexible inflation targeting (FIT) framework provides the anchor for exchange rate stability,” Das said.
In India, retail and wholesale inflation has remained above the RBI’s tolerance limit of 6%. In August, the retail inflation surged to 7% higher than that of 6.71% in July.
