In the past few weeks, most of the Indian treasury desks have taken on a war-room look. Too many events got crammed in relatively short time. Most of us know that Rupee has seen a near oneway slide against the dollar, losing nearly 26% in value in last 2 years. It’s but natural that RBI would react to this punter run. The question is, how effective would these measures be, in dissuading offshore transactions. For now, the banking system is scrounging for liquidity, which is increasing supply pressure on many asset classes.
It is clear that RBI’s intervention is aimed to stabilizing the Rupee rather than to regain lost ground; and thus arrest inflationary pressure.
And yes! There is a silver lining to this. If India is able to achieve foreign exchange stability and restrict inflation, we would have higher cost competency in dollar terms. This in turn should attract and induce higher FDI and domestic capital into the export oriented manufacturing sector over the period.
But what is required is that our policy makers are ready to realize this specter of opportunity, because India still ranks 132nd, behind even some of the war torn MENA countries. With the new growth ‘normal’ at around 5-5.5%, many of the entrepreneurs would not look at India until the cost of business in India is brought down. The markets would remain glued for the next policymaker move in this regard.
Indeed interesting times ahead.
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