6 May , 2021 Fdiindia
Why RBI Urgently Needs Forex Policy?
The currency markets have recently seen a lot of uncertainty. However, there is no explicit regulation that defines the RBI's action.
Unlike monetary policy, which is driven by the specific goal of reducing inflation, foreign exchange management is left to the Reserve Bank of India's discretion (RBI). For several years, the RBI has maintained that it does not set a target for the Rupee's value and only intervenes when there is an unspoken indicator of currency fluctuations. Regardless of the RBI's articulated policy or purpose, the sheer extent and essence of its activity makes it a significant determinant of currency market prices. And the position of the central bank in the currency market has become increasingly prominent in recent months.
Via FY21, the RBI's interference strategy was outstanding. In the face of large foreign exchange inflows, it served as a volatility heat sink. It avoided excessive rupee overvaluation, which could have hampered India's domestic output, jobs, and Atmanirbhar Bharat tilt prospects.
Due to the ongoing lockdown in the region, which is set to last until April 14, the Reserve Bank of India announced on Friday that it will reduce money exchange and foreign exchange goods.
The amendment, which will be in effect from April 7 to April 17, was made due to the extraordinary condition created by the COVID-19 outbreak, according to the regulator. Staff and IT infrastructure at the RBI were reportedly seriously impacted, creating "operational and logistical threats." The apex regulator also stated that the thinning of operation was affecting market liquidity and rising financial price uncertainty.