- Overview: Reacting to extreme currency volatility caused by the $125/barrel oil price surge, the Reserve Bank of India (RBI) has opened a $10 billion emergency Dollar-Rupee swap window to arrest the sharp depreciation of the Indian currency.
- Key Points:
- Forex Defense: The mechanism injects immediate dollar liquidity into the forex markets, preventing massive capital outflows by Foreign Portfolio Investors (FPIs).
- Import Cover Protection: Utilizing India’s robust foreign exchange reserves to cushion the macroeconomic blow of imported inflation, specifically in the energy sector.
- Bond Market Calm: The central bank simultaneously executed open market operations (OMOs) to stabilize rising yields on government securities.
- Macroeconomic Resilience: Demonstrates the strength of India’s regulatory frameworks in insulating domestic growth trajectories from severe external geopolitical shocks.
Source Link: RBI Monetary Policy Interventions
- Q7. Which of the following is NOT a component of India’s Foreign Exchange Reserves managed by the RBI?
- A) Foreign Currency Assets (FCA)
- B) Gold
- C) Special Drawing Rights (SDRs)
- D) Sovereign bonds issued by Indian State Governments
