RBI Governor: 'Good trade deal' with US to ease current account, rupee pressure, Pg15

Key Highlights:

• RBI Governor Sanjay Malhotra anticipates a beneficial trade agreement with the US to alleviate pressure on India's current account and rupee.
• India's foreign exchange reserves were at $687 billion as of November 7, a decrease of $15 billion since mid-October.
• The Indian rupee recently approached a record low of 88.81 per dollar in September, closing at 88.71 per dollar on Thursday.
• India's trade deficit reached a record high of $41.68 billion, with exports down 12% and imports up 17%.
• Net FDI in the first five months of 2025-26 was $10.13 billion, significantly higher than the previous year.
• The RBI maintains a cautious stance on cryptocurrencies and stablecoins, citing significant risks.

Detailed Insights:

• The recent rupee depreciation is attributed to trade-related factors, including US tariffs on India, such as a 25% penal tariff on Russian oil and energy purchases.
• The RBI intervenes in the foreign exchange market by selling dollars to stabilize the rupee, but does not target a specific exchange rate level.
• India's current account deficit widened to $2.35 billion in April-June 2025, a sharp contrast from the $13.48 billion surplus in the previous quarter.
• While FDI inflows have increased in early 2025-26, the net FDI for the entire 2024-25 fiscal year was only $959 million, indicating volatility.
• The RBI supports digital innovations like UPI and digital lending while remaining wary of the risks associated with cryptocurrencies.
• A government working group will decide on the future regulation of cryptocurrencies in India, as the RBI currently does not regulate them.

Key Concepts Involved:

• Current Account: Measures a country's transactions with the rest of the world, including trade in goods, services, and investment income.
• Foreign Exchange Reserves: Assets held by a central bank in foreign currencies, used to back liabilities and influence monetary policy.
• FDI (Foreign Direct Investment): An investment made by a firm or individual in one country into business interests located in another country.