"Reserve Bank of India, being the custodian of country's foreign exchange reserves, is vested with the responsibility of managing its investments". Comment.

The Reserve Bank, as the custodian of the country's foreign exchange reserves, is vested with the responsibility of managing its investment. The basic parameters of the Reserve Bank's policies for foreign exchange reserves management are safety, liquidity and returns. Within this framework, the Reserve Bank focuses on: Maintaining market's confidence in monetary and exchange rate policies. Enhancing the Reserve Bank's intervention capacity to stabilise foreign exchange markets. Limiting external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis, including national disasters or emergencies. Providing confidence to the markets that external obligations can always be met, thus reducing the costs at which foreign exchange resources are available to market participants. Adding to the comfort of market participants by demonstrating the backing of domestic currency by external assets. While safety and liquidity continue to be the twin-pillars of reserves management, return optimisation has become an embedded strategy within this framework for the Reserve Bank. The Reserve Bank, in consultation with the Government, continuously reviews the reserves management strategies.