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RBI Is Doing A Good Job

The decline in foreign exchange reserves is mainly because of foreign investors taking money from local stock markets and central banks intervening by selling dollars in the market to prevent local currency depreciation.

In India, the foreign currency reserves dipped by nearly $10 billion to reach $289.46 billion in August, as the RBI was seen propping up the Indian rupee that fell by Rs 1.3 to a dollar in August. Also, foreign investors have taken more than $8 billion (net outflow) from the Indian markets in the current calendar year. (Forex reserves of 8 Asian countries down by $36 bn).

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RBI should focus on this situation on three counts –

1. Let the rupee depreciation at a higher rate. This will give a good short term boost to exports. Let us earn some money in the short run.

2. Slash gold duties and taxes to nil. Let Indians import old against the higher dollar earnings. Increase bank refinance ratio against gold mortgages and lower interest rates on such refinance.

3. Let the stock market fend for itself in the short run – instead of support by DFI and Indians banks.

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