The RBI is Trying to Protect The Falling Rupee


The Central Bank RBI (Reserve Bank of India) faces a tough choice in how it uses its monetary muscle. The Rupee is now in a stable position but the question is till how the RBI can able to protect the Position of Rupee in respect to Dollar. It is strange that when the Indian Economy is doing well the Rupee is in a verge of great fall. To defend the Rupee, Asia’s worst performing currency of 2018, it risks sucking massive amounts of rupee out of an economy already grappling with tightness in cash and unintended policy tightening. The alternate is lot let the Rupee increase past 70 $ to record lows, eroding confidence and investment in an economy heading into general elections of 2019 in India.
The RBI is going to target the inflation and hold up 5 % of it in the foreign exchange reserves since April 2018, trying to floor under the Rupee. The Rupee as Asia’s worst performing currency this year is down by 5 % since the starting of 2018. It will keep falling down in necessary step were not taken in appropriate time.
The RBI’s greatest challenge will be if tighter funding hurts an economy that has been expanding at an annualized pace above 7 %. That makes it the fastest recovering currency rate of Asia. The Economic Analysts think it ought to be doing more , if not through bond purchases then by unwinding forward holdings in Dollar ($) swaps to release funds in any formats.
We would happily like to conclude this article on a happy note by quoting the Chief Economist for Southeast Asia & India at ANZ in Singapore, Mr. Sanjay Mathur who said that “I expect RBI to stick to its neutral stance on liquidity to contain any sharp rise in interest rates or bond yields”.

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