IMF: IMF advises RBI against excessive forex interventions
While lauding India’s policy efforts to push reserves and strengthen its external position, IMF has advised the Reserve Bank of India (RBI) against excessive forex market interventions.
“Further accumulation of reserves is less warranted, and foreign exchange intervention should be limited to addressing disorderly market conditions,” IMF said in its recently released country report for India.
In the previous report of December 2019, though the multilateral agency had called for alerts about restricting intervention to addressing volatility, this time round it has explicitly called for going slow on reserves accumulation.
“The guiding objectives of foreign exchange reserve management in India are similar to those of many central banks in the world,” the RBI said in the Report on Management of Foreign Exchange Reserves released on Wednesday.
“Demands placed on the foreign exchange reserves may vary widely depending upon a variety of factors including the exchange rate regime adopted by the country, the extent of openness of the economy, the size of the external sector in a country’s GDP and the nature of markets operating in the country,” the RBI report said.
“While safety and liquidity constitute the twin objectives of reserve management in India, return optimization is kept in view within this framework,” RBI said.
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