Alongside building its FX reserves, the RBI’s evolving FX policy – to keep the Rupee stable and competitive – is supporting growth and stabilising inflation in the face of volatile global economic environment. 

However, even as the RBI is championing the use of the Rupee as a policy tool, its approach may need to shift as the economic environment changes. If its intervention distorts FX markets, they may paradoxically become vulnerable to future shocks.