ECB flows under both the automatic and approval routes are moderated by interest rate ceilings (a price variable) and those under the automatic route through an additional ceiling on total quantity (a quantity variable). Non-Resident Indians (NRI) deposits are monitored through an interest rate ceiling, a price variable. 18. Our exchange rate policy is not guided by a fixed or pre-announced target or band.
Our policy has been to intervene in the market to manage excessive volatility and disruptions to the macroeconomic situation. This “volatility centric approach” to exchange rate also stems from the source of volatility which is capital flows. Despite not having a fully open capital account, we have experienced large volatility in capital flows as the data for last four years suggests (See Table below).