It is time for RBI to defend the rupee as it is on a slippery slope. The rupee crashed to a 15 month low and it is alarming situation. It is time to improve the country’s macros so that the currency does not appear vulnerable to speculators, then by improving fund inflows from long-term investors keeping the hopes alive and three, by improving trading conditions. Since the country’s depleting foreign exchange reserves had made it difficult for the RBI to defend the rupee in recent times. It is also prudent by introducing masala bonds and encouraging settlement of foreign trades in the rupee may also add heft to the Indian currency. The in elasticity of demand for petroleum products within the country, coupled with the inability of the government to adjust domestic supply in line with demand at short notice, renders the country vulnerable to sudden spikes in global crude prices. These short-term foreign investors also tend to take money back to their home countries in periods when risk-aversion soars. It is also to be seen how much the elevated Indian interest rates and the additional liquidity will balance the rupee falling below Rs 67 mark. From here on it is time to keep a close watch on rupee slide in the market.
(The views expressed by the author in the article are his/her own.)