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Reserve Bank of India’s Deputy Governor M Rajeshwar Rao has said that India needs to gear up to manage the exchange rate volatility as the country progresses on the path of internationalisation of rupee and freer capital account convertibility. He also said that internationalisation of rupee has its own benefits as well as challenges and risks which the country and the Reserve Bank of India will have to deal with.

He said as the economy grows and becomes more developed, the scope of participation in foreign exchange markets would change. He mentioned ‘With the increasing integration of the economy with the rest of the world, more and more entities are likely to, directly or indirectly, get exposed to foreign exchange risks. There are likely to be demands for permitting hedging of economic exposures.’

Moreover, he said a whole new market with a new set of market participants has opened up, with banks in India being allowed to participate in the offshore non-deliverable market for rupee derivatives in a bid to integrate markets. This is a part of the overall effort towards greater convertibility of rupee.