The drawdown of foreign reserves during periods of foreign exchange market volatility has declined over time due to RBI interventions, according to a paper by central bank leaders.
Volatility expectations have also declined over the study period, which starts from 2007 and includes the current episode of volatility triggered by the Russian-Ukrainian war.
The RBI has a stated policy to intervene in the foreign exchange markets if it sees volatilities, but the central bank never lets a targeted level slip away. In the current episode, he successfully defended the Rupee’s depreciation above the USD 80 mark.
The study by Saurabh Nath, Vikram Rajput and Gopalakrishnan S of the RBI’s Financial Markets Operations Department, which does not represent the view of the central bank, indicates that reserves fell by 22% during the financial crisis of 2008-2009, against only 6% in the current episode following the Russian invasion of Ukraine.
“The Reserve Bank has been able to meet its intervention targets with an increasingly lower percentage drawdown on foreign exchange reserves,” he said.
In absolute terms, the 2008-09 global financial crisis led to a drawdown of USD 70 billion from reserves, which fell to USD 17 billion during the COVID-19 period and stood at USD 56 billion as of July 29 this year. year due to the impact of the invasion of Ukraine.
The document states that some of the important factors affecting volatility are interest rates, inflation, government debt, current account deficit, political stability, commodity dependence as well as geopolitical events, as well as the liquidity.
He said that the Reserve Bank has been able to achieve its objective of keeping the volatility of the INR exchange rate low, which is reflected in the trends of realized volatility, volatility cone and the intraday range.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)