Reserve Bank of India Governor Shaktikanta Das on Wednesday said that the depreciation of the Rupee against the US Dollar has been least disruptive in comparison to the other major economies.

“The appreciation of the US dollar this year, which precipitated large scale depreciation of all major global currencies including the Indian rupee (INR), has drawn wide attention. It is important to make an objective assessment of the movement of the INR in the context of global and domestic macroeconomic and financial market developments,,” Governor Das said. 

“Through this episode of US dollar appreciation, the INR’s movements have been the least disruptive,relative to peers. In fact, the INR has appreciated against all other major currencies except a few. Cross-country comparisons of exchange rate movements are often made on an inflation-adjusted basis or what is called in real effective terms. On a financial year basis (i.e., from April 2022 to October 2022), the INR has appreciated by 3.2% in real terms, even as several major currencies have depreciated. The story of the INR has been one of India’s resilience and stability,” he added.

Meanwhile, the overall system liquidity continues to remain in surplus. Between the months of October and November this year, the average total absorption under the liquidity adjustment facility declined to ₹1.4 lakh crore, as against ₹2.2 lakh crore between August and September. Governor Das said that the apex bank has remained nimble and flexible in liquidity management, while maintaining the absorption mode, in order to meet productivity requirements. 

As per the RBI data, between the April and October period this year, the foreign direct investment (FDI) flows stood at $22.7 billion as against $21.3 billion in the same period last year. Between July to the first week of December this year, the foreign portfolio flows stood at $11.8 billion. In order to enhance forex inflows, the new external commercial borrowings (ECB) agreements have been concluded for $8.6 billion. 

According to the RBI data, the size of the forex reserves has gone up from US$ 524.5 billion on October 21, 2022 to US$ 561.2 billion as on December 2, 2022 covering around nine months of projected imports for 2022-23. On Wednesday, the RBI slashed the country’s real GDP growth forecast for 2022-23 at 6.8%, with Q3 at 4.4% and Q4 at 4.2%. The apex bank also kept the inflation target for the current financial year 2022-23 (FY23) unchanged at 6.7%, while cautioning that the battle against inflation is not over yet. 

Recently, rupee depreciating below the ₹80-mark against the US Dollar. It touched the record-low of ₹83.075 against US Dollars in October. On Wednesday, Rupee opened lower at ₹82.66 as against the previous closing price of ₹82.61 against the US Dollar, thus nearing the one-month low mark. Notably, in the calendar year and fiscal year, Rupee has depreciated by more than 9% and 7% against the US Dollars, respectively,  despite the RBI hiking the repo rate by 225 basis points so far in order to curtail inflation. A depreciating Rupee against the US Dollar would mean a widening trade deficit and a decline in exports. The country’s trade deficit widened by 4.66% to $26.91 billion in October from $25.71 billion in September this year and exports declined for the first time in 19 months, to 15.9% at $29.78 billion in October from $35.45 billion in September.  

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