Some unpleasant forex arithmetic

.....The Reserve Bank of India’s (RBI’s) market intervention strategy and the efficacy of its administrative measures to support the rupee have to be seen from this perspective. In a period when portfolio flows are weak, RBI has to fill this gap by offering dollars from its stock of reserves. The success of “intervention”, thus, depends on what percentage of this $2.5 billion deficit RBI absorbs by supplying dollars. There are again a couple of things about RBI’s intervention strategy that are becoming clearer as the rupee comes under successive rounds of depreciation pressure. First, RBI is unwilling to do much when there is risk aversion all around. This was quite apparent ........

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