Reserve Bank Governor Sanjay Malhotra on Thursday said that the Reserve Bank of India’s foremost priority is to ensure financial stability and that the central bank is working to simplify regulations wherever possible while retaining essential safeguards.
Delivering the VKRV Rao Memorial Lecture at the Delhi School of Economics, Malhotra said the RBI remains “vigilant and alert” to emerging risks and evolving economic conditions.
“We do realise that short-term growth can be achieved at the cost of financial stability, but financial instability can have much bigger consequences for the long run,” he said, noting that losses stemming from instability could outweigh short-term gains.
The Governor said that while financial stability forms the base of the RBI’s approach, other objectives also guide policy. These include prudential requirements on liquidity and capital to ensure the safety and soundness of financial operations. He added that conduct-related measures for consumer protection and matters relating to law enforcement, including money laundering concerns, continue to receive close attention.
Speaking on currency trends, Malhotra attributed the recent depreciation of the rupee to a higher demand for the US dollar. “We do not target any level. It is a financial instrument and there is demand. If the demand for dollars goes up, the rupee depreciates. If the demand for rupee goes up, the dollar comes down and it appreciates,” he said.
He stressed that India’s foreign exchange reserves provide “ample protection” and that the Reserve Bank has “very good” buffers to manage external sector pressures.
Responding to a question on the rupee, Malhotra said the current pressure is largely trade-related and linked to tariff developments in the United States. He expressed confidence that India and the US will reach a trade agreement, which could ease the pressure on the current account and the currency. “The recent pressure on the rupee may come off when India and the United States agree on a trade deal,” he remarked.
Earlier on Thursday, the rupee closed 23 paise lower at 88.71 against the US dollar.
On the banking sector’s performance, Malhotra said the outlook remains strong. “The way Indian banks are performing, very soon a few of them will be among the top 100 global lenders,” he said.
—IANS