RBI Guv stabilizes volatile rupee with forex reserves

India’s central bank governor, Shaktikanta Das, has skillfully managed a delicate balance: controlling rupee volatility while allowing its gradual depreciation to support Prime Minister Narendra Modi’s export goals.zF

The Reserve Bank of India’s foreign exchange reserves have surged to nearly $700 billion, drawing comparisons to China’s buildup two decades ago. Under Das’s leadership—set to conclude in December after six years—the rupee has transformed from one of Asia’s most volatile currencies to one of the least. 

At the same time, the exchange rate has reached record lows, close to 84 per dollar, without raising concerns about rising import costs or inflation. A recent example is the rupee’s relatively mild reaction to a significant interest rate cut by the Federal Reserve, which shook global markets.

Managing volatility and building foreign exchange reserves to protect the economy from sudden capital outflows has been a cornerstone of Das’s tenure. This strategy has attracted foreign investment and improved a current account deficit that often troubled his predecessors. However, these interventions come with risks and have faced criticism from the US Treasury.

Das has also benefited from favorable market conditions. Roughly $20 billion in debt inflows, largely due to India’s inclusion in JPMorgan Chase & Co’s flagship emerging markets bond index, has allowed the central bank to accumulate foreign currency. At the same time, optimistic investors are betting on India’s rapid economic growth, which has propelled its stock market past Hong Kong to become the fourth largest globally this year.