Reserve Bank of India hints at using $700 billion reserves to intervene in currency rates

The Reserve Bank of India's (RBI) Governor, Sanjay Malhotra, in an interview with Mint, stated, "Considering the recent depreciation, there is a reason to believe that the rupee is not overvalued; if anything, it could be said that the rupee has become undervalued." He also emphasized that the central bank will use all tools, including foreign exchange reserves of about $700 billion, to curb speculative fluctuations in the market.

The RBI usually refrains from explicitly commenting on the valuation of the rupee, making this statement particularly rare. Economist Dhiraj Nim from ANZ Bank noted that the governor's willingness to discuss the rupee's valuation indicates that "the central bank is doing everything in its power to prevent the rupee from sliding under strong balance of payments pressures," and recent actions to defend the rupee are expected to continue.

The rupee hit a record low earlier this week at 96.9650 before rebounding on the back of increased intervention by the central bank and a回落 in oil prices. On Monday, the rupee was reported at 95.29 against the US dollar, with a cumulative increase of 1.5% over three days, but it has still depreciated by about 6% so far this year. Foreign capital outflow from the Indian stock market has exceeded $23 billion this year, surpassing last year's record, which is the core reason for the continuous pressure on the rupee.

In terms of inflation, India's CPI for April is still below the central bank's 4% target, but the wholesale price inflation rate has risen to 8.3%, more than doubling from before, and fuel retailers have raised prices for the fourth time this month. The cost pressure on manufacturers is gradually being passed on to the consumer end. Despite this, most economists, including Nim, still expect the central bank to keep interest rates unchanged at the meeting on June 5th.