SBI Urges RBI to Leverage Forex Reserves Amid West Asia Crisis

A report from SBI suggests the Reserve Bank of India should use foreign exchange reserves to support the rupee amid the ongoing West Asia crisis. The rupee experienced significant volatility, settling at 94.78 against the USD. The report argues for proactive intervention and highlights potential market measures.

The State Bank of India (SBI) has recommended that the Reserve Bank of India (RBI) deploy its foreign exchange reserves to stabilize the rupee, which has been impacted by the escalating West Asia crisis. On Monday, the rupee breached the 95/USD-mark before closing at 94.78, reflecting heightened volatility due to geopolitical tensions involving Iran.

According to the research report from SBI's economic research department, India's foreign exchange reserves are robust, surpassing 10 months of import requirements. With external reserves exceeding USD 700 billion, SBI believes such resources are sufficiently strong to counter speculative practices by intervening in the forex market if necessary.

The report also suggests that oil marketing companies should receive a dedicated window for foreign exchange, distinct from routine market demands. Additionally, it addresses the likely liquidity challenges arising from the RBI's recent cap on banks' Net Open Position at USD 100 million, which could affect both onshore and offshore markets.

(With inputs from agencies.)