RBI will allow ample time for implementing changes regarding ECL, LCR: Guv
New Delhi, Feb 8, 2025
RBI Governor Sanjay Malhotra says market determines rupee depreciation, touches on necessary regulations surrounding cryptocurrency
The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Saturday said that the central bank is reviewing all suggestions related to the draft norms for project financing and plans to engage in a consultative process. Following this, the RBI will allow adequate time for implementing changes concerning expected credit loss (ECL), liquidity coverage ratio (LCR), and project financing.
Malhotra made these comments during a press conference, where he also addressed topics like currency management, liquidity, and the recent repo rate cut aimed at stimulating consumption. He emphasised the RBI's focus on enhancing credit access and advancing the Unified Lending Interface (ULI) to reach the last mile.
"We will provide ample time for the rollout of the LCR and will implement changes in phases wherever significant modifications to the guidelines are needed," he noted.
The governor also touched on the necessary regulations surrounding cryptocurrency. While he did not disclose many specifics, he mentioned that a discussion paper on cryptocurrency is in the works, adding it was premature to share his views before the paper's release.
In the same press meet, Union Finance Minister Nirmala Sitharaman said, “Whether it is inflation or growth, monetary policy and fiscal policy are like two tyres of a car. By working together and in coordination, our economy and public will gain from it. That’s why I think whether it’s inflation or growth, particularly plugs for growth, it is appropriate for the RBI and the government to have coordination on this.”
Sitharaman stated that while the two institutions operate closely together, they do not overlap in their functions. "I don’t think any overlap has occurred in the last decade, and I don't foresee that happening in the future. There has been effective coordination between the RBI and the government," the finance minister remarked.
Regarding the depreciation of the rupee, Malhotra mentioned that the central bank will monitor any declines in the currency that could trigger inflation.
"Most of the rupee's depreciation is linked to tariff announcements by (US President) Donald Trump and global uncertainties. We hope that these issues will stabilise, leading to a decrease in inflation," Malhotra explained.
He pointed to the recent rise in global uncertainties that contributed to the rupee's sharp decline, particularly following Trump's decision to impose higher tariffs on key trading partners, including Canada, Mexico, and China.
The Indian rupee has recently reached record lows due to foreign capital outflows and increased demand for dollars from oil importers, amid weak global market conditions. Addressing concerns about further weakening of the rupee, Malhotra emphasised that the RBI's stance on the currency remains unchanged.
"We don’t target a specific price level or band for the rupee. We only intervene when there is excessive volatility. We have confidence in the market's efficiency and rely on it to determine the rupee's value," he noted.
On the topic of liquidity, Malhotra indicated that the RBI will be "nimble, agile, and vigilant" regarding the banking system's needs.
Liquidity has been strained in recent weeks due to tax outflows, significant RBI interventions in the forex market to sell dollars, and slower government spending.
"We have various tools available to manage liquidity effectively. We will utilise them, including open market operations (OMO), forex buy/sell swaps, and other measures like LAF and VRR, ensuring that sufficient liquidity is maintained, so there’s no need for concern," Malhotra concluded.
[The Business Standard]
