It’s not just about depreciating R

.....The government and RBI need to avoid this trap. The Chairman of the Prime Minister’s Advisory Council, Dr Rangarajan, has been constantly communicating on the exchange rate in the past two weeks. About a week ago he said RBI should not allow temporary ebbs in the capital flows to unduly impact the exchange rate. That gave the impression that RBI would defend the currency by selling dollars in the market. Indeed, RBI did sell dollars in the market on several occasions to counter the speculators. However, the expectation was that RBI will come down with a sledgehammer if the exchange rate weakened beyond R54-55. Those levels have got breached now, creating a further scare in the market. Some feel RBI has been a bit half-hearted.......

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