India’s Falling FX Buffer Prompts Calls for Softer Rupee Defense

The Reserve Bank of India’s defence of the rupee has weighed on the country’s foreign exchange reserves, prompting some analysts to call for reduced future intervention. Lower reserves could limit the RBI’s ability to smooth currency moves, raise rupee volatility risk and potentially pressure EM capital flows and domestic liquidity management.

Analysis

The Reserve Bank of India’s defence of the rupee has weighed on the country’s foreign exchange reserves, prompting some analysts to call for reduced future intervention. Lower reserves could limit the RBI’s ability to smooth currency moves, raise rupee volatility risk and potentially pressure EM capital flows and domestic liquidity management.