.... The recovery in the rupee is not really natural or necessarily sustainable; it is driven by a combination of the RBI’s desperate measures and global risk-on that has boosted portfolio inflows. The RBI should now consider changing tactic and intervene in the foreign exchange market to increase its foreign exchange reserves. This, in turn, will enhance its ability to better manage potential wild rupee swings. The merits of the hands-off exchange rate management notwithstanding, the RBI’s preference for this approach while also struggling with the combination of a large CA deficit and dependence on volatile capital inflows actually worsens to the very currency swings that the RBI reportedly tries to check.......
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