RBI's chief hopes record foreign exchange to act as cushion against rupee volatility

Reserve Bank of India’s governor, Raghuram Rajan has expressed hopes that record foreign exchange reserves would act as a cushion against rupee volatility when global interest rates begin to climb. He further asserted that there were no doubts about the industrial countries being tested, when interest rates would start picking up, but also highlighted that India too would be tested by capital outflows. The governor, however, hoped the measures taken to strengthen the macro-economic fundamentals could act as buffer against capital outflows. 

Meanwhile, data by RBI showed that India's foreign exchange reserves declined by $573.5 million to $319.99 billion due to a sharp fall in the currency assets for the week ended August 1. The reserves had increased by $2.71 billion to $320.56 billion on the back of a sharp rise in the currency assets for the week ended July 25.

Earlier in the month, Raghuram underscored that RBI had no intention to create a vast stockpile of foreign exchange reserves, as there was a cost to carry them and that the central bank intended to let private sector manage the adjustment required in the foreign exchange market, in a move which would not happen overnight.