Business

RBI’s Reserves Enhance Confidence Amid US Political Instability

The Indian rupee is positioned as a strong contender among emerging markets, poised to weather the volatility stemming from the closely contested US presidential election. This stability is bolstered by a robust central bank ready to support the currency with its substantial foreign exchange reserves.

As traders closely monitor the latest polling data revealing no clear frontrunner in the race between Kamala Harris and Donald Trump, the uncertainty has driven up the cost of hedging against dollar fluctuations to its highest levels since early 2020.

The Reserve Bank of India’s (RBI) near-record foreign exchange reserves have enabled it to effectively manage the rupee, making it less susceptible to the fluctuations associated with the US elections. Unlike many other currencies, the rupee is relatively insulated from changes in US tariff policies due to India’s domestic-focused economy, according to analysts at MUFG Bank.

Michael Wan, a senior currency analyst at MUFG, noted that the RBI is actively engaged in the market to minimize currency volatility, with reserves that are more than sufficient. He highlighted India’s macroeconomic stability, characterized by a manageable current account deficit of just over 1% of GDP and easing inflation pressures.

RBI Governor Shaktikanta Das has emphasized the importance of maintaining foreign exchange reserves to safeguard the economy against volatility. He has been proactive in utilizing these reserves to prevent a significant depreciation of the rupee, particularly when it approached the 84 per dollar mark.

According to Bloomberg Economics, the central bank likely sold approximately $10.8 billion in the three weeks leading up to October 25 to support the rupee, which recently hit a record low of 84.1087 on Monday amid ongoing outflows from Indian equities.

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Kanika Sharma

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