The Falling Rupee & RBI's Losing Battle
How much is the rupee going to depreciate ? That's a question which the expatriate community keeps asking to every Tom Dick & Harry. The intention is to lock in on the most favorable exchange rate (i.e, highest depreciation ). Similarly when I visited India recently, some of the discussions often veered towards concerns on depreciating rupee as it is increasing the fuel cost. Now, predicting the level is like a lottery. I'm not going to do that. The level, hinges on a lot of policy decisions by Govt, RBI & even the European Central Bank. Instead I want to write on a set of common misconceptions prevalent in Indian media about this phenomenon 1) Why cannot RBI sell dollars & pop up rupee ? RBI cannot and should not try intervening in forex market beyond a level. The volume of INR currency market is supposed to be about $40 - $50 billion a day . Now, to seriously make an impact on the exchange rate, RBI will have to release about $10 billion a day ( i.e, bare...