The depreciation of the Indian rupee is due more to the appreciation of the US dollar than to a weakness in the macroeconomic fundamentals of the Indian economy as the domestic currency far outperforms several other currencies, said Shaktikanta Das, governor of the Reserve Bank of India (RBI). said Monday.
“Market interventions by the RBI have helped to contain volatility and ensure the orderly movement of the rupee. We remain vigilant and focused on maintaining the stability of the Indian rupee,” Das said, reviewing the results of the latter. monetary policy meeting.
During the current fiscal year, the US dollar index has appreciated 8 percent against a basket of major currencies, while the Indian rupee has fallen 4.7 percent in a relatively orderly fashion.
Notably, the Indian rupee fell below the psychologically significant level of 80 against the US dollar for the first time in July. Reasons include a widening trade deficit, the strength of the US dollar, fund outflows and soaring global crude oil prices, analysts say. It quickly moved from the record low to currently trading at 79.10 per US dollar.
Meanwhile, the RBI’s Monetary Policy Committee has unanimously decided to raise the repo rate by 50 basis points to 5.40 percent in order to curb persistently high inflation. Today’s rise brings the repo rate above the pre-pandemic level of 5.15 percent. Raising interest rates typically suppresses demand in the economy, thereby decreasing inflation.
The committee also decided to remain focused on the “withdrawal of accommodation” to ensure inflation remains within target in the future while supporting growth. The three-day meeting of the monetary policy committee began on Wednesday.
In line with the global trend of tightening monetary policy to cool inflation, the RBI has so far increased key repo rates – the rate at which a country’s central bank lends money to commercial banks – by 140 basis points.
Retail inflation in India was above the Reserve Bank of India’s upper tolerance limit of 6 percent in June for the sixth straight month. Retail inflation stood at 7.01 percent in June.
Real gross domestic product growth for 2022-23 is maintained at 7.2 percent with Q1 at 16.2 percent, Q2 at 6.2 percent, Q3 at 4.1 percent and Q4 at 4 percent with risks broadly balanced, Das said.
The MPC reiterated that retail inflation is expected to remain above the maximum tolerance level of 6 percent for the first three quarters of 2022-23.
Inflation forecasts are maintained at 6.7 percent in 2022-23, Das said.
On the current inflation trend, it said food inflation has registered some moderation, mainly due to softening edible oil prices and increasing deflation in legumes and eggs.
The minutes of the last MPC meeting will be published on August 19 and the next MPC meeting is scheduled for September 28-30.
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