Rupee will need support in coming months
The rupee’s volatility underlines the need for reserves to manage volatility—a policy tool the RBI no longer has
Last week’s global sell-off showed how volatile the removal of monetary accommodation could be. Triggered by fears that the US Federal Reserve will start withdrawing the punch bowl if the US economy improves, the tremors—with Japan as the epicentre—rattled India too. Stocks fell by 3% and the rupee shuddered—depreciating 0.3% on average daily, 1.4% over the previous week and hitting a low of ₹ 56 to the dollar. In May, the currency is nearly 4% down from its recovered February value of ₹ 54.
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