"spending money" to solve the problem may no longer work for India. In the fight against the ever-increasing dollar, the RBI has to admit that it can do little to control the decline of the Indian rupee.
Data from the Central Bank of India showed that as of September 16, India's foreign exchange reserves were US$545.7 billion, nearly US$100 billion less than the US$642.45 billion a year ago, a decrease of 15%, hitting a new low since October 2020.
Meanwhile, the Indian rupee has depreciated 10% against the US dollar this year and is currently at 1 US dollar against Rs 81.25, while the MSCI Emerging Markets Currency Index has fallen 9%.
According to media, Goldman Sachs pointed out that India's current foreign exchange reserves are equivalent to 8.4 months of imports. According to the RBI, the figure was 13 months as of the end of 2021. Abheek Barua, chief economist at HDFC Bank, believes that if foreign exchange reserves fall below $500 billion, the RBI will have to find more ways to increase its reserves.
Media said that as foreign exchange intervention is rapidly consuming foreign exchange reserves and the US dollar is still rising, Reserve Bank of India needs to deploy its resources more wisely:
1. Increase the benchmark interest rate . The RBI has raised its benchmark interest rate by 1.4 percentage points this year and may increase by another 0.5 percentage points this Friday.
2. In addition to raising policy interest rates, one more thing the RBI can do is to make foreign currency more easily enter India. This makes investments in India more attractive. In July this year, the Bank of India relaxed its bond market regulations for foreign securities investors and allowed commercial banks to raise interest rates on non-resident foreign currency deposits.
Although India's economic growth has been far ahead recently, its situation is not enviable. If the Federal Reserve adheres to the current "hawkish" approach and pushes the United States into recession, it may be difficult for India to avoid a significant rate hike in and a sharp slowdown in economic growth.
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