Market Speaks: RBI Warns About Heavy Capital Outflows From India, Induces Sustained Pressure On INR

24 Jun 2022 , 12:10 PM

The Indian Rupee has been under stress this week amid worries over extended capital outflows from India. The Rupee has not been able to hold in last few days even as the movement in equities showed some positive bias. A conclusive break above 78 per US dollar mark put the INR in a sustained downward slope. In the Reserve Bank of Indias latest bulletin, an article titled Capital Flows at Risk: Indias Experience cautioned about an event- comprising a combination of shocks- which might lead to portfolio outflows of about $100 billion or Rs. 7,80,000 crores. Authored by the Deputy Governor of Reserve Bank of India (RBI) Michael Debabrata Patra, along with Harendra Behera and Silu Muduli, the report called for maintaining liquid reserves to deal with the event which is known as Black Swan. A Black Swan is a rare, unpredictable event that comes as a surprise and has a significant impact on economy or the world. Capital outflows, particularly, portfolio flows are driven by the global risk aversion and they are sensitive to shifts in risk sentiment globally. So, if there is an adverse event like COVID type contraction in real GDP growth or a global financial crisis like a decline in interest rate differentials, India could see capital outflows to the tune of 3.2% of GDP or around $100 billion.Powered by Commodity Insights