The Reserve Bank of India (RBI) will intervene in the foreign exchange market if there is extreme volatility in the exchange rate.
“(When) there are situations where there is extreme volatility... we have intervened in the past,” said HR Khan, deputy governor, RBI. “If there are cases of extreme volatility, we will intervene in the future also.”
He further said that the stated policy of the central bank is not to intervene in the forex market and let the market forces determine the exchange rate.
Referring to the steps taken to check volatility in the domestic currency, Khan said: “We have taken both tactical and strategic measures. Government has also taken some steps.”
Rupee, which has strengthened to R52 level in the recent past, has shown some weakness in the last two trading sessions and breached Rs. 53 level on Monday after wholesale price index (WPI) based inflation rose to a 10 month high of 7.8% for September.
Khan also said that the monetary and fiscal policy have to move in tandem. He also said that the fiscal deficit is one of the major concerns in the current situation and it should be brought under control. He said the supply side response is required for inflation management.