The Indian Rupee has depreciated against the US dollar over the past year. In a piece for Mint, Dr Niranjan Rajadhyaksha, Executive Director, Artha Global, writes that out of the four general principles of maintaining a strong exchange rate, two are in favour of India and two against it.
Excerpts below:
“The extent a currency has depreciated against the US dollar in recent months is dependent on four factors: the structure of its trade, the state of its current account balance, the availability of foreign exchange reserves to intervene in the market as well as the readiness to do so, and the extent of borrowing in international rather than domestic currencies.”
“These are the four general principles. Two of them are in favour of India—a sizable stock of foreign exchange reserves and low levels of dollar debt. The other two are less favourable—a wide current account deficit and being a net commodity importer. The actions and future policy options of the Reserve Bank of India (RBI) in recent months can be viewed against this backdrop.”
Read the full article here.
