RBI Governor Sanjay Malhotra has offered a broad overview of the central bank’s thinking on the rupee, India’s inflation framework, and the evolving stance on crypto assets, emphasising stability and caution at every step.Speaking at the Delhi School of Economics, Malhotra underlined that the Reserve Bank does not aim for any specific exchange rate.
“First of all, we do not target any level,” he said, explaining that the rupee’s movement is fundamentally a market-driven outcome.
“Why the rupee is depreciating is because of demand. It’s for the markets to decide… ultimately it’s a commodity, a financial instrument. If the demand for dollars goes up, the rupee depreciates; if the demand for rupee goes up, the dollar comes down. That’s the simple answer,” he noted.The underlying drivers, he said, lie in capital flows and current account flows. Recent pressures, Malhotra pointed out, were tied to expectations surrounding trade.“On the trade side there are some additional penal tariffs, as a result of which expectations have built up that our trade deficit may go up.”He added that October’s decline in exports also fed into current account concerns, while capital inflows remained “somewhat muted.”Despite these pressures, Malhotra is upbeat. “We are quite confident that there will be a good trade deal going forward, and that should relieve whatever pressure has been there on our current account. We have very good buffers of foreign exchange, $690 billion, so that’s not a matter of concern.”Turning to inflation, the Governor defended the target band.“The inflation band provides flexibility because we have a very high component of food and very high volatility especially because of food prices. That’s why we have a higher band of plus-minus 2%,” he explained.He refrained from commenting on the ongoing review of the inflation framework.“I would not like to give our view right now because the review is in process… It will be inappropriate on my part to give RBI’s views when the process is going on.”On cryptocurrency, Malhotra drew comparisons between the US and Indian payments ecosystems.“Our country is very different from the US… We have a very sound system of payments—UPI, NEFT, RTGS—at a scale the US does not. So the payments problem they have is not there with us,” he said.However, he emphasised that the RBI is actively experimenting with the Central Bank Digital Currency (CBDC).“We are promoting and experimenting with the CBDC, which is a crypto backed by the central bank. It’s an alternative for payments within our country and more importantly for wholesale and cross-border payments.”Also, given the risks and concerns raised on cryptocurrencies Malhotra observed that caution remains the operative word.“That’s why we have a very cautious approach towards crypto… The government has to take the final view. There’s a working group, and they will take a call on how, if at all, crypto is to be handled in our country.”Also Read: RBI does not target any level for rupee: Governor Malhotra
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