RBI: Accounting and accountability

.......Part of the explanation for the failure of RBI may have to do with its misguided monetarist economic mode. That there are plenty of such arcane models floating around can be illustrated with reference to the current debate on the rapid depreciation of the rupee, and what to do about it. Some argue that if RBI wants to prevent its currency from depreciating, and/or depreciating so rapidly, then it should increase interest rates. This analysis was not even appropriate in a fixed exchange rate world, and that world disappeared fully 40 years ago in 1971. For decades now, capital flows, and exchange rates, respond to prospects for economic growth and not to changes in interest rates. That some analysts still peddle this snake oil thesis is surprising..........

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