RBI governor says aims to prevent rupee depreciation expectations

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The Indian central bank aims to anchor expectations around the depreciating rupee and will intervene to prevent an overshoot, ensuring the exchange rate reflects fundamentals, Reserve Bank of India Governor Shaktikanta Das said on Monday.

The partially convertible rupee has so far depreciated more than 7% against the U.S. dollar, but Das said the depreciation was less than in other currencies.

"Our intervention policy is to prevent excessive volatility in exchange rate, to anchor expectations around depreciation," Das said at an event organised by the Fixed Income Money Markets and Derivatives Association of India.

Many economists have said the rupee was likely to struggle against the dollar as slowing global growth and the U.S. Federal Reserve's interest rate stance overshadowed the RBI's interventions.

Das, however, expressed confidence that foreign exchange reserves of $561 billion, as of August 26, provided a cushion against external shocks.

"The RBI is in the market on a regular basis, providing liquidity and confidence so as to facilitate its smooth and normal functioning."

The fall in global crude and other commodity prices coupled with the return of foreign investors to the Indian stock and debt markets have eased pressure on the Indian currency.

Inflows of foreign funds in August alone touched $7.5 billion, much higher than the net inflows in the previous month, Das said.

"Going forward, our monetary policy will remain watchful, nimble-footed, and calibrated in order to ensure price stability while supporting growth," Das said.

INFLATION LIKELY TO COOL?

The RBI governor said while incoming monthly inflation data in the near term could be bumpy, it was expected to moderate in the second half of the current fiscal year that ends in March 2023.

Inflation was likely to move to within the central bank's tolerance band, fixed at 2%-6%, in Jan-March 2023, and then further ease in the first quarter of next fiscal year, he said.

Consumer inflation dipped to 6.71% in July, easing for the third month in a row, but remained above the tolerance band for the seventh month in a row.

India will release CPI inflation data for August next week.