RBI had expended more than $30 billion in three months in an attempt to stabilise the rupee, yet the currency still reached an unprecedented low of Rs 96.91.
RBI could give up its current interest rate position and hike rates, encouraging foreign capital to profit from that. But that hike would incur a cost on growth.
The govt's appeal to spend fewer dollars is well-intentioned, but voluntary behavioural change is uncertain. A weaker rupee achieves the same outcome automatically and faster.
The rupee’s fall to record lows amid rising energy-import costs and capital outflows is raising expectations that RBI Governor Sanjay Malhotra may be forced to abandon his pause and hike rates.
The lesson we seem to have learnt is that we should not bother with exporting goods if our remittances and service exports can help us keep our current account deficit modest.
The other emerging market currencies experienced a more pronounced depreciation against the dollar than the rupee in 2024, resulting in a relative appreciation effect.
Both the government and the RBI are currently so focused on their respective targets that they are losing sight of the fact that some flexibility might actually be a good thing.
ThePrint analysed exchange rate & trade data from April 2012 to September 2022, which shows there’s little relation between the rupee movement and performance of exports.
Repeated changes in cotton import duty have prioritised textile competitiveness when mills face high input costs. But policy can also put pressure on farmgate prices.
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