USD/INR: RBI’s FX intervention makes sense, but is not without costs – ANZ

USD/INR is now above 83.0, a lifetime high. Economists at ANZ Bank analyze the Reserve Bank of India’s (RBI) perspective on the role of exchange rate.

RBI’s evolving FX policy is supporting growth and stabilising inflation

Alongside building its FX reserves, the RBI’s evolving FX policy – to keep the Rupee stable and competitive – is supporting growth and stabilising inflation in the face of volatile global economic environment. 

However, even as the RBI is championing the use of the Rupee as a policy tool, its approach may need to shift as the economic environment changes. If its intervention distorts FX markets, they may paradoxically become vulnerable to future shocks.