Rupee, Reserves: RBI’s Calibrated Approach to Managing the Exchange Rate

The rupee has depreciated 28.3 percent over the past decade but has averaged around 3 percent depreciation annually, indicating a calibrated approach by the Reserve Bank of India (RBI) in controlling the exchange rate. The central bank has maintained that it is only intervening to curb volatility and not hinder currency movement. The maximum depreciation in a year occurred in FY20, during the Covid-19 pandemic and in FY23 – a year of heightened geopolitical tensions following Russia’s invasion of Ukraine in February 2022.

The RBI has stepped up its intervention in the foreign exchange market in 2022, resulting in a sharp decline in foreign exchange reserves. The situation changed completely in FY24 when the Indian currency turned out to be one of the most stable currencies, depreciating just 1.45 percent. The strong inflows also helped the central bank boost its foreign exchange reserves, which are at a record high.

First print: April 17, 2024 | 12:13 pm IST