RBI’s foremost priority is to ensure financial stability: Reserve Bank Guv

New Delhi, Nov 20 (IANS) Reserve Bank Governor Sanjay Malhotra on Thursday said that the foremost priority of the RBI is to ensure financial stability in the system, and it was working to simplify regulatory requirements where possible while maintaining necessary safeguards and guardrails.

In his address at the VKRV Rao Memorial Lecture in the Delhi School of Economics, Malhotra further stated that the RBI is vigilant, alert to emerging risks and evolving conditions.

“We do realise that short-term growth can be achieved at the cost of financial stability, but financial instability can have much bigger consequences for the long run; they can have much more losses than the gains achieved due to the short term,” Malhotra pointed out.

He said while financial stability remains the bedrock, there are other objectives, such as prudential aspects of liquidity and capital requirements to ensure the safety and the soundness of financial operation in the interest of all the stakeholders, which may or may not have financial stability implications.

Secondly, conduct related measures for consumer protection, assistance in law enforcement, for example, money laundering, and that's an issue which has engaged our attention, the RBI Governor observed.

He attributed the recent depreciation in the rupee to the higher demand for the US dollar.

Highlighting that the movement in the rupee is a result of market forces, he said, “We do not target any level. Why is the rupee depreciating? It is because of the demand...It's a financial instrument, and there is a demand for dollars, and if the demand for dollars goes up, the rupee depreciates; if the demand for rupee goes up, the dollar comes down, then it appreciates.”

The RBI Governor also underscored that India’s foreign exchange reserves are healthy and provide ample protection. He said the Reserve Bank has “very good” buffers of forex reserves and there is no reason to be concerned about the external sector.

In answer to a question on the depreciation of the rupee, Malhotra said the pressure is largely trade-related and influenced by US tariff developments. He expressed confidence that India will secure a good trade deal with the United States, which would ease the pressure on the country’s current account balance and the rupee.

“The recent pressure on the rupee may come off when India and the United States agree on a trade deal. We are confident there will be a good trade deal with the US going forward," he said.

On Thursday, the rupee fell by 23 paise to close at 88.71 against the US dollar.

In response to another question on the performance of domestic banks, Malhotra said the outlook for the Indian banking sector is strong. “The way Indian banks are performing, very soon a few of them will be among the top 100 global lenders,” he remarked.

--IANS

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