“In normal times, these linkages are important for an efficient price discovery,” Malhotra said but not when there is too much punting and market volatility.
Reassuring the market, he further said, “the RBI’s endeavour has always been to widen and broaden the forex markets. However, when there is excessive volatility and excessive building-up of positions, which only increase volatility and don’t help in real price discovery, such kinds of measures are taken.”
Following the April 1 curbs, the rupee made its best single-day rally of notching up 1.8% and Wednesday the unit continued to gain and closed below 92.20.
Experts said the RBI’s comments about the rupee showcased strong confidence-building measures to manage exaggerated moves while maintaining its stance of not targeting particular levels of the rupee.
“The rupee could find some stability over the coming days along with some cooling off in the 10-year bond yields with a 6.8-7% range likely to emerge,” said Sakshi Gupta, principal economist at HDFC Bank.
Others see support for the rupee on the back of a temporary ceasefire between the US and Iran.
“With respect to the rupee, some easing of geopolitical uncertainties following the ceasefire should provide some support to the currency. However, the RBI is likely to remain vigilant and continue its efforts to curb excessive volatility in the foreign exchange market,” said Rajani Sinha, chief economist at Care Ratings. She expects the rupee to average at 92-93 levels in FY27 if global crude prices average $90 a barrel.
Malhotra said despite stronger macroeconomic fundamentals, the rupee’s depreciation in the previous financial year was more than the average of the previous years. Safe haven flows, he said, have exerted depreciation pressure on the currencies of major economies as the US dollar strengthened.
According to Malhotra, the RBI stands committed to this policy and would judiciously continue to contain excessive or disruptive volatility to ensure that self-fulfilling expectations do not exacerbate currency movements beyond what is warranted by fundamentals.
