How can India control the value of the rupee in the international market?
The Reserve Bank of India can sell dollars in the open market to bring down the value of the US greenback, albeit slightly.
Normally, the RBI uses its Monetary Policy to defend the rupee's value. Short-term interest rates changes do impact the value of the rupee against other currencies. But, the RBI has mostly used the policy to stabilise internal conditions, like steps to control rising inflation.
However, if the Indian stock markets boom -- like they did in the last couple of years -- more and more global funds would begin to invest in India thereby strengthening the rupee as the demand for the dollar in the local markets drops.
Image: A policeman stands guard outside the Reserve Bank of India in Mumbai. | Photograph: Indranil Mukherjee/AFP/Getty Images
Also read: Ratan Tata's words of inspiration
Advertisement
