Indian Rupee New Low Vs Dollar

The Indian Rupee has breached the 44 level and is weakening against the USD. The RBI is not really active in the market which is a blessing in disguise to the Exporters. Now, why is the RBI piling up USD ? Well, as an insurance cover 🙂

The March 08 international investment position tells that, US$297bn fx reserves not withstanding, India still owes US$100+bn. This is why, in Gov Reddy is so reluctant to use fx to appreciate against inflation – as some Delhi economists advise – or float a sovereign wealth fund – as another section proposes – to acquire strategic CIS gas fields. Recall he let the INR temporarily slip Rs46+/USD in mid-06 rather than run down fx reserves. This, of course, begs the question why we still expect the RBI to stem depreciation? Because this time’s different because of imported inflation.

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