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Wednesday, September 28, 2022

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RBI Takes Steps To Liberalise Forex Flows Amid Weakening Rupee

This comes as the Indian rupee continues to depreciate against the U.S. dollar. The domestic currency fell to a fresh record low of 79.37 against the greenback on Wednesday, before erasing some losses and closing at 79.30.

The global outlook, the RBI said, is clouded by recession risks. Consequently, high risk aversion has gripped financial markets, producing surges of volatility, selloffs of risk assets and large spillovers, including flights to safety and safe haven demand for the U.S. dollar.

As a result, emerging market economies, it said, are facing retrenchment of portfolio flows and persistent downward pressures on their currencies. India’s growth prospects, however, remain strong and resilient.

Despite headwinds from geopolitical developments, elevated crude prices and tighter external financial conditions, high-frequency indicators point to an ongoing recovery in several sectors. All capital flows, barring portfolio investments, remain stable and an adequate level of reserves provides a buffer against external shocks.

Reflecting these strong fundamentals, the rupee has depreciated 4.1% against the U.S. dollar during the current financial year so far—modest relative to other emerging market economies and even major advanced economies, the central bank said.

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