Last Update: March 09, 2023, 19:15 IST
According to Rao, as the country moves on the path of internationalization of the rupee, more dynamics are likely to come.
RBI Deputy Governor M Rajeswara Rao said that as the economy grows and becomes more developed, the scope of participation in foreign exchange markets will change.
India needs to gear up to manage exchange rate volatility as the country moves on the path of rupee internationalization and free capital account convertibility, according to Reserve Bank Deputy Governor M Rajeshwar Rao.
He also said that internationalization of the rupee has its benefits as well as challenges and risks that the country and the Reserve Bank of India (RBI) have to deal with.
Delivering the keynote address at the 17th FEDAI conference in Cairo on Sunday, Rao said that as the economy grows and becomes more developed, the scope of participation in foreign exchange markets will change.
“With the increasing integration of the economy with the rest of the world, more and more entities are likely to be exposed to foreign exchange risks, directly or indirectly. There is likely to be a demand for allowing hedging of economic risks, ” They said.
A new market has opened up with a new set of market participants, with banks in India being allowed to participate in the offshore non-deliverable market for rupee derivatives in an effort to integrate the markets. He said this is a part of the overall effort towards greater convertibility of the rupee.
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According to him, as the country moves on the path of internationalization of the rupee, more dynamism is likely to come.
“It is now widely accepted that while internationalization and a free capital account come with its own set of benefits, it is not without risk and that free capital flows come with their own set of challenges. There is primary volatility and we need to gear up to manage it,” he said.
Noting that in an ever-evolving world where change is the only constant, he said that the journey of the Indian forex market over the last few decades has been one of continuous growth and innovation.
He said that RBI is committed to continue to move at a steady pace in tandem with the changing macro-financial environment both globally and domestically.
Going forward, he said that as markets become more developed and interconnected, and as the range of products expands, greater challenges will emerge.
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)