…..One way to do this would be for the RBI to work with a band for the exchange rate that it would be comfortable with. (It need not necessarily share this with the market.) If the rupee-dollar pair crosses the upper end of this band (that is, depreciates beyond this), the RBI should sell dollars. Conversely, if it falls below the band, it could buy dollars. There is no need to have a rigid band — it could change over time as market conditions change. What is important is the principle…….
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