Reserve Bank of India – Press Releases

Today the Reserve Bank of India positioned on its web site a Working Paper titled “Monetary Policy Independence under a Flexible Exchange Rate Regime – The Indian Case” underneath the Reserve Bank of India Working Paper Series¹. The Paper is co-authored by Harpreet Singh Grewal and Pushpa Trivedi.

In an open economy, central banks confront the unimaginable problem of concurrently preserving trade fee stability, conducting unbiased financial coverage, and benefitting from an open capital account.

Against this backdrop, the paper assesses whether or not the overseas trade market interventions by the RBI to comprise the volatility in INR have had any constraining affect on India’s financial coverage independence throughout 1991 to 2020.

The main findings of the paper are:

1. There is a excessive diploma of sterilisation of the rise in cash provide that outcomes from foreign exchange market interventions in India.

2. Forex market interventions throughout surges in capital flows to comprise the INR volatility result in a rise in M₃, which nevertheless is discovered to be neither inflationary nor elicits a coverage fee response by the RBI; this factors to RBI’s financial coverage independence not dealing with a lot constraints from its trade fee coverage and monetary openness.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2022-2023/903