13 Apr 07 Indian Rupee at a 8 year high, as forex reserves surge past $200 billion
India’s forex reserves cross $200 billion, for the first time ever. As soon as this data was released by the RBI, the rupee touched a 8 year high and breached the 43.50 per dollar mark. This level was last seen 8 years back!
Reserves have risen rapidly in recent months on the back of growing foreign investment, higher remittances and increased overseas borrowing by Indian companies. The buoyant Indian economy and the Indian stock markets are primarily responsible for this. India is now the 5th asian giant, having forex reserves of over US $200 billion.
Inspite of RBI moderation, the rupee has appreciated nearly 10 percent since July. Companies exporting goods and services, especially the Indian software companies, have been severely affected due to erroding margins. These companies have not been able to increase theire billing rates because of severe competition and hence the profit margins have taken a hit. RBI is now a bit hesitant to intervene and buy dollars because it feels that could fuel inflation as more rupees come into circulation.
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Indian Rupee at a 8 year high, as forex reserves surge past $200 billion…
India’s forex reserves cross $200 billion, for the first time ever. As soon as this data was released by the RBI, the rupee touched a 8 year high and breached the 43.50 per dollar mark. This level was last seen 8 years back!
Reserves have risen rapi…
Sir, in the above article, it is written that if RBI intervenes by buying USD, then inflation would fuel and would leave more money in the market. Sir, kinly explain this phenomenon. How does this happen??
Thank you
@ Rajesh – To prevent rupee from further appreciating, RBI needs to intervene in the forex markets and buy dollars, thereby increasing the demand for dollars. Now if RBI has to buy dollars it would need to sell rupees, right? So there would be more currency (rupees) in the system. If there is more money in the system then inflation will rise. This is because inflation in crude terms occurs because of “lots of money chasing few products”, thus driving the prices of products up.
Hope this helps.