RBI won’t allow jerky rupee moves: Patra

“This year will be the RBI’s year of MSME. We are already working with banks to ease the credit cycle and improve access to credit to MSMEs

RBI deputy governor Michael D. Patra on Friday said that the central Bank is defending the rupee against volatility and will not allow ‘jerky movements’, though it is not targeting any particular level for the domestic currency against the US dollar.

When asked about the rupee’s future trajectory at an interactive session with industry captains at a PHDCCI event, Patra said, “We don’t know where the rupee will be. Even the US Fed doesn’t know where the dollar will be. But be sure of one thing. We will stand for its stability, and we’re doing it on an ongoing basis even as I speak.”

“We are there in the market. We will not allow disorderly movements in the rupee. We have no level in our mind, but we will not allow jerky movements. That’s for certain,” he said. Patra said the depreciation of the rupee is one of the least in the world and that is the power of India’s $600 billion forex reserves.

On a question on rupeerouble payment mechanism, Patra, who looks after the monetary policy department in the RBI, said the central bank will do whatever the government decides.

Patra further said the decline in India’s current account deficit (CAD) to 1.5 per cent of GDP in the fourth quarter, from 2.6 per cent in the third quarter of 2021-22, augurs well for the country’s external viability. On an annual basis, therefore, the current account deficit turned out to be a modest 1.2 per cent of GDP in 2021-22, with the intrinsic strength of India’s foreign exchange earnings mitigating the terms of trade shocks imposed by geopolitical spillovers and the surge in import demand, he said.

On another question on improving access to capital for MSMEs, Patra said that the RBI is trying to focus on ways to improve credit access to the MSME sector. “This year will be the RBI’s year of MSME.” Patra said that the central bank is working with banks to improve existing credit access for MSME and also reduce cost of credit. The central bank is considering launching a portal, which will be monitored by the RBI, to ensure easy credit access to MSME, he said.

“Of the six or seven things we are taking on as deliverables for this year, I think this year will be the RBI’s year of MSME. We are already working with banks to ease the credit cycle and improve access to credit to MSMEs. We can think of different dispensations for MSME,” he said. He also said that the central bank is also in talks with big businesses and various government departments to improve the payment cycles to MSMEs as such businesses do not get paid in time. “For such small businesses, payments not coming on time is always a pain point,” Patra said.

On a question on inflation, Patra said that there are indications that inflation may be peaking. “As monetary policy works through into the economy...inflation is expected to fall back into the threshold in the fourth quarter of 2022-23 and fall even further in the next year. This is only the baseline scenario,” he said, adding that because of initiatives taken so far, inflation may fall “sooner and faster”. “Therefore, in this world of global inflation, it is possibly better to look at the change in inflation, not the level,” he said.

The government has tasked the RBI to ensure inflation remains at 4 per cent with a 2 per cent deviation on either side.

— Michael D. Patra, Deputy Governor, RBI