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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