1. RBI has been soaking up the inflow by building reserves. It is sterilising the Rupee it is releasing at fairly high interest rates - so net effect is that the Rupee is strengthened by the high rates but the supply demand mismatch is not causing Rupee appreciation either because RBI is providing the demand to make up for any slack in demand. So Rupee is stable.
Since rates are high the injection of Rupee in our markets is not stoking inflation
Rajen is proving more than adept. Modi + Jaitly + Rajan is a winning combo.
2. Dollar has been strengthening - and this is happening despite the low US bond yields of 2.48% which indicates a flight to safety due to low Euro and Japanese yields and economic performance. So net effect is to keep Rupee stable
3. Imports are picking up. It is an early indicator of future growth in our economy. But imports increase demand for dollar and keep Dollar strong viv-a-vis Rupee
4. All of these are likely to keep Rupee stable. Otherwise the natural tendency of Rupee should be to depreciate given our inflation difference. So inflows would cause volatile appreciation followed by volatile depreciation at the first sign of stopping.
5. Japan and China keep their currency weak by building reserves. RBI is doing the same thing. I think RBI would be happy to average a 2-3% depreciation of Rupee per annum but in a slow and steady way rather than in sudden uncontrolled jerks like Subbarao allowed
Since rates are high the injection of Rupee in our markets is not stoking inflation
Rajen is proving more than adept. Modi + Jaitly + Rajan is a winning combo.
2. Dollar has been strengthening - and this is happening despite the low US bond yields of 2.48% which indicates a flight to safety due to low Euro and Japanese yields and economic performance. So net effect is to keep Rupee stable
3. Imports are picking up. It is an early indicator of future growth in our economy. But imports increase demand for dollar and keep Dollar strong viv-a-vis Rupee
4. All of these are likely to keep Rupee stable. Otherwise the natural tendency of Rupee should be to depreciate given our inflation difference. So inflows would cause volatile appreciation followed by volatile depreciation at the first sign of stopping.
5. Japan and China keep their currency weak by building reserves. RBI is doing the same thing. I think RBI would be happy to average a 2-3% depreciation of Rupee per annum but in a slow and steady way rather than in sudden uncontrolled jerks like Subbarao allowed
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