Conributed by Baidik Sarkar, Unifi Capital
Our belief in the inherent strength of the Indian rupee has blinded us in looking at other drivers of the currency. Our faith in RBI’s monetary management practices has contributed largely to our coherent views on the relationship between INR and USD. They fact that we were unscathed in 2008 was largely attributed to RBI’s prudence in fiscal and monetary management issues and we assumed RBI’s non-intervention was a sign that the current phase of INR-USD volatility will have a short shelf life. We have been in denial a bit too long; any longer from here and the scars might be too deep to heal.
Source Reference: Reuters
India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the Reserve Bank of India (RBI) with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.
Read on for further insights: http://reut.rs/uwTQ9A
Unlike most of its Asian peers, India has recently been running large current account and fiscal deficits. That means it must attract sufficient foreign money to close the gap, and a weaker home currency makes that costlier.
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