India’s central bank is the Reserve Bank of India (RBI), which was established on April 1, 1935, under the Reserve Bank of India Act. The Reserve Bank of India is in charge of regulating the currency and credit systems of India and uses monetary policy to maintain financial stability there.
The RBI’s primary mission is to oversee the entire Indian financial sector, which includes commercial banks, other financial institutions, and non-banking finance companies. Restructuring bank inspections, implementing off-site surveillance of banks and financial institutions, and expanding auditors’ responsibilities are just a few of the RBI’s initiatives.
 India’s monetary policy is first and foremost the RBI’s responsibility. The management of the bank wants to keep prices stable and make sure that credit goes to productive economic sectors. Under the Foreign Exchange Management Act of 1999, the RBI also manages all foreign exchange.
The RBI can use this law to make payments and trade with other countries easier in order to help India’s foreign exchange market grow and stay healthy. The RBI oversees and regulates the financial system as a whole. The public gains confidence in the national financial system, interest rates are safeguarded, and positive banking alternatives are made available to them. Lastly, the RBI is in charge of issuing the national currency.Â
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Shaktikanta Das, Governor of the RBI stated that
This indicates that India issues or destroys currency based on its suitability for current circulation. This resolves a persistent issue in India by providing the Indian public with dependable notes and coins as a source of currency. Friday, Governor Shaktikanta Das of the Reserve Bank of India stated that, despite market uncertainty, the central bank’s forex reserves umbrella has maintained its strength.
He said that the RBI has constantly been evaluating the current and changing circumstances when intervening in the forex market. Das stated that valuation adjustments brought about by a stronger US dollar and higher bond yields in the United States account for approximately 67% of the decline in reserves that occurred during the fiscal year that began on April 1st.On a balance of payments (BOP) basis, the governor stated that the foreign exchange reserves increased by $4.6 billion in Q1-2022.
“India’s additional external indicators, including, the ratio of external debt to GDP; the ratio of net international investment to GDP; the proportion of reserves to short-term debt; as well as a lower debt service ratio when compared to the majority of other major EMEs6.In fact, among major EMEs, India has the lowest ratio of external debt to GDP. Das stated, “We remain confident of comfortably meeting our external financing requirements in the end.”
Additionally, he stated that a stable exchange rate is a sign of market confidence and stability across the macroeconomic and financial sectors. He stated that the rupee is a freely floating currency whose exchange rate is determined by the market and that the RBI has no fixed exchange rate in mind.
“Maintaining macroeconomic stability and market confidence is the overarching focus.”The return of capital inflows since July demonstrates that our actions have contributed to fostering investor confidence. The issue of adequate forex reserves is always taken into consideration. The umbrella’s strength remains.”In the week ending September 16, India’s foreign exchange reserves were reduced by an additional $5.22 billion, reaching their lowest level since October 2, 2020.Â
Reserves of foreign currency also decreased for the seventh week in a row. According to Reserve Bank of India data, the reserves stood at $545.65 billion, down from the all-time high of $642.453 billion on September 3 of last year.
Over the previous two weeks, reserves had decreased by more than $15 billion. Although outflows of dollars are the primary cause of this depletion, a change in the valuation of reserves held in currencies other than the US dollar is also partially to blame for this trend. Foreign currency assets made up $484.90 billion of the current reserves, while gold reserves were worth $38.19 billion.
According to Deutsche Bank, India’s overall foreign exchange reserves will decrease further this year as a result of the central bank’s interventions to support the rupee and a growing current account deficit. India’s government officials have stated that, despite the rapid decline, the country has substantial reserves to weather the market turmoil.
