Mr. Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI). File | Photo credit: The Hindu Bureau
India must be prepared to manage exchange rate volatility as the country moves towards internationalization of the rupee and freer convertibility of the capital account, according to Deputy Governor of Bank of India reserve, Mr. Rajeshwar Rao.
He also said that the internationalization of the rupee has its own benefits as well as challenges and risks that the country and the Reserve Bank of India (RBI) will face.
Delivering the keynote address to the 17th FEDAI conference in Cairo on March 5, Rao said “as the economy grows and develops, the scope of participation in the foreign exchange markets will change.”
“As the economy becomes increasingly integrated with the rest of the world, more and more entities are likely, directly or indirectly, to be exposed to currency risks. economic exposures,” he said. .
“A whole new market with a new set of market participants has opened up, with Indian banks being allowed to participate in the non-deliverable offshore rupee derivatives market in a bid to integrate the markets. This is part of the effort global move towards greater convertibility of the rupee,” he said.
According to him, other dynamics are likely to emerge as the country progresses on the path of internationalization of the rupee.
“It is now widely accepted that while internationalization and a freer capital account come with their own benefits, they are not without risks and that freer capital flows come with their own challenges, the main being that of volatility and we need to be prepared to manage that,” he noted.
Observing that in an ever-changing world where change is the only constant, he said that “the Indian forex market’s journey over the past decades has been one of continuous development and innovation.”
“RBI remains committed to continuously moving forward at a steady pace in line with the changing macro-financial environment – globally and domestically,” he said.
Going forward, he said greater challenges will emerge as markets become more developed and interconnected, and the range of products expands.
