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Is RBI doing enough to contain the Fx volatility during the current Crisis? 

During the fortnight of 24th February to 6th March, INR moved from 71.88 to 74.00. During the period there was panic and FPI sold USD 4.24 billion on net basis.

But what was net flow of RBI, RBI Fx reserve increased by USD 11.11 bn from USD 476 bn to USD 487 bn. Even after removing Gold price impact, the Fx accumulation has been USD 9.68 bn. That kind of indicates that RBI was net buyer during the fortnight. It is still baffling to me why will RBI do something like this.

During 8th to 13th March RBI Fx reserve came down by USD 3.78 bn ( excluding gold impact) and during the period FPI also sold around USD 3.5 bn. The balance was maintained and INR also remained stable during the week around 74.00

On 16th of March RBI did a USD 2 bn swap and the swap was repeated today again.

Overall in this time of lockdown, RBI is unable to do any lockdown on USDINR. When you need to slap the market, RBI is pinching. The stated objective of containing volatility is not met by the central bank specially when there are more than ample Fx reserve. Fail to understand the point of accumulating aggressive reserve if the same is not to be used for containing volatility.

The logic of slide with the world and peer group doesn’t work here since China has maintained their currency stability very well. CNY still at 7.09 levels, not more than 2% depreciation YTD whereas Indian rupee has lost over 5% on YTD basis.

RBI has to step up the game to contain Fx volatility – these are the times to use the reserve and you have more than enough.

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