Sanjay Malhotra, Governor of the Reserve Bank of India (RBI), on Wednesday flagged heightened volatility in the foreign exchange market and clarified that recent regulatory measures were temporary responses to market conditions, even as he reiterated that headline inflation remains the central bank’s primary focus.
Speaking at the post Monetary Policy press conference, Malhotra said, “Last few weeks, there were volatilities in the forex market,” adding that the measures undertaken by the central bank are not permanent. “Forex market measures are not going to be there forever,” he said.
Detailing the trigger for intervention, the RBI Governor said, “In the last few weeks of last month, March, there was heightened volatility in the forex markets. We saw that positions were being built up, leading to arbitrage positions between the non deliverable forward markets and the deliverable markets.”
He noted that while such linkages are important in normal conditions, excessive positioning can distort markets. “In normal times, these linkages are important for efficient price discovery. But when there is excessive volatility, when there is excessive building up of positions, it is only increasing volatility and perhaps not helping in efficient price discovery. Such kind of measures are taken,” Malhotra said.
He emphasised that these actions are purely tactical. “These are reactions to specific market movements. These are not in any sense signalling any structural change,” he said.
Reaffirming the central bank’s longer term approach, Malhotra added, “We stand committed long term to the development, broadening and deepening of these markets and to the internationalisation of the rupee. These are not measures which are going to remain there forever.”
Policy not pre set, no forward guidance
The RBI Governor said the central bank is not committing to any fixed policy trajectory and will remain guided by incoming data.
“Monetary policy is not a pre set course of action,” Malhotra said, adding that the Reserve Bank is “not in a position to say what the Monetary Policy Committee will do in the next meeting.”
Headline inflation remains policy anchor
Reaffirming the RBI’s core mandate, Malhotra said, “Headline inflation remains our target. That is the primary goal.”
He added that the central bank is also closely tracking the underlying drivers of inflation. “The various components of inflation, and where they are emanating from, are also very important,” he said.
Core inflation projections introduced
In a shift in communication, the RBI has begun providing projections for core inflation following feedback from market participants.
“This has been a request from market participants. We thought this is the right time to give our projections on core,” Malhotra said, linking the move to the central bank’s periodic review.
Macro resilience, banking system stable
Highlighting domestic strength, Malhotra said, “Structurally, the Indian economy is very strong, very resilient,” citing robust macroeconomic fundamentals despite global shocks.
He added that the banking system remains stable under the current regulatory and supervisory framework.
Global developments monitored
On the recently announced US Iran ceasefire, Malhotra described it as “pleasant news, not something surprising,” indicating that global developments are being tracked but are not seen as disruptive at this stage.
The RBI’s commentary indicates continued focus on inflation management and close monitoring of external sector movements, with policy actions remaining contingent on evolving market conditions.
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