RBI steps in with big measures for rupee, but should it let currency fall instead?
The Indian rupee has experienced a prolonged free fall, prompting the Reserve Bank of India (RBI) to intervene with measures like building foreign exchange reserves and utilizing FCNR(B) deposits. While these actions have led to a recent appreciation, there's an ongoing debate among experts and the IMF on whether the RBI should allow market forces to determine the rupee's value as a shock absorber.
Why it matters
The rupee's depreciation significantly impacts India's economy, influencing import costs, export competitiveness, and inflation. The RBI's chosen intervention strategy has critical implications for the nation's financial stability, economic growth, and its standing in global markets.
Where is the rupee headed? The Indian currency has been in a free fall for several quarters now. At one time its one-year forward even breached the 100 mark prompting experts and economists to wonder if the rupee will cross the 100 mark versus the US dollar.A lot has changed since then. The Reserve Bank of India (RBI) has stepped in to build a record foreign exchange reserves chest to arm itself with tools to intervene in the forex market. The FCNR(B) deposits scheme helped attract billions of dollars, putting India in a comfortable position on the forex reserves front.Yet continued capital outflows, high oil prices, uncertainty on the US-Iran war front, and rising US bond yields have added pressure to the currency, pushing it to record lows of almost 97.More recently, RBI’s measures unveiled last week have led to the rupee appreciating sharply.
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8 other newsrooms covered this event. We read each version separately.
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