Reserve Bank of India Not Targeting Specific Exchange Rate Amid Rupee’s Decline

After a 3% decline in the rupee since mid-December, the new chief of India’s central bank reportedly said Friday (Feb. 7) that the bank is working to maintain stability without hurting market efficiency.

“Our interventions in the forex market focus on smoothening excessive and disruptive volatility rather than targeting any specific exchange rate level or band,” Reserve Bank of India Governor Sanjay Malhotra said, according to a Bloomberg report.

These were Malhotra’s first comments on the rupee’s slide, the report said. There had been speculation in the market that the RBI under his leadership was doing less to control the currency than it had done under his predecessor.

Malhotra said Friday that the RBI is using all the tools it has at its disposal and that it’s more important to look at the long-term rate than the day-to-day volatility, per the report.

After the central bank cut its key rate by a quarter of a percentage point Friday, the rupee recouped some of the losses against the dollar it had seen in recent weeks, according to the report.

The report attributed the rupee’s recent declines to the currency being overvalued compared to similar currencies at a time when there is a global trade war going on.

The RBI said in December that it is making mobile payment links with several countries, adding that it has an arrangement with Sri Lanka, is working with the United Arab Emirates (UAE), and has “some arrangements” with Nepal and Bhutan.

The central bank is working with other central banks in the region to create a cross-border platform for instant payments. India has also tested a central bank digital currency (CBDC).

In August, the RBI said it planned to launch a technology platform designed to enable frictionless credit, especially for small and medium-sized businesses (SMBs).

Dubbed the “Unified Lending Interface,” the platform facilitates seamless and consent-based flow of digital information from multiple data service providers to lenders, cutting down on the time needed for appraisal; has common and standardized application programming interfaces (APIs) that enable a plug-and-play approach; and enables borrowers to get credit quicker and without providing extensive documentation.