Last updated time: 09 March 2023, 19:15 IST
According to Rao, further dynamics are likely to emerge as the country moves towards the internationalization of the rupee.
RBI Deputy Governor M Rajeshwar Rao said that as the economy grows and develops, the scope of participation in foreign exchange markets will change.
Reserve Bank Deputy Governor M Rajeshwar Rao said India needs to be prepared to manage exchange rate volatility as the country moves towards rupee internationalization and capital account liberalization.
He also said that internationalization of the rupee has its own merits, but also challenges and risks that the country and the Reserve Bank of India (RBI) have to address.
Delivering a keynote address at the 17th FEDAI conference in Cairo on Sunday, Rao said that as the economy grows and develops, the scale of participation in foreign exchange markets will change.
“With the increasing integration of the economy with the rest of the world, more entities may be directly or indirectly exposed to currency risks. There may be requirements for permission to hedge economic risks,” he said.
An entirely new market with a new set of market participants was opened, banks in India were allowed to participate in the offshore non-deliverable market for rupee derivatives to consolidate the markets. This is part of an overall effort to increase the convertibility of the rupee, he said.
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He said further dynamics could emerge as the country moves towards internationalization of the rupee.
“It is now widely recognized that while internationalization and the free capital account have their own merits, they are not without risks, and that the free flow of capital comes with its own challenges, chief among which is volatility, and we need it.” preparing to manage it,” he said.
Observing that change is the only constant in an ever-evolving world, he said the journey of the Indian foreign exchange market over the past few decades has been one of continuous development and innovation.
RBI is poised to move forward continuously at a steady pace in line with the changing macro-financial environment globally and domestically, he said.
He went on to say that as markets develop, become more interconnected and product ranges expand, greater challenges arise.
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(This story was not edited by News18 staff and was published by a syndicated news outlet)