Rupee, reserves: Calibrated approach taken by RBI in managing exchange rate

The rupee has depreciated 28.3 per cent in the past 10 years, but on average it has fallen around 3 per cent a year, indicating a calibrated approach taken by the Reserve Bank of India (RBI) in managing the exchange rate. The central bank has maintained that it intervenes only to curb the volatility and not come in the way of the currency movement. The maximum depreciation in a year was in FY20, during the Covid-19 pandemic and in FY23  – a year of heightened geopolitical tensions following Russian invasion of Ukraine in February 2022.

The RBI stepped up its intervention in the foreign exchange market in 2022, resulting in a sharp fall in foreign exchange reserves. The situation changed completely in FY24 as the Indian unit turned out to be one of the most stable currencies depreciating only 1.45 per cent. Robust inflows also helped the central bank spruce up its foreign exchange reserves which is at an all-time high.  

 

FY24 saw second highest accretion to foreign exchange reserves in the last 10 years.