Can RBI intervene to defend the rupee?

The Indian central bank’s past omissions return to haunt it once more
The Indian central bank’s past omissions return to haunt it once more
The rapid pace at which the rupee has lost value this week—a 2% fall on Monday followed by another 1% by Tuesday noon—has once again sparked off talk about intervention to stabilize the currency.
Reserve Bank of India (RBI) governor D. Subbarao explained on Monday that a failed defence of the exchange rate can be worse than no defence at all. Fair enough. But as the impending end to the US Federal Reserve’s quantitative easing hits the rupee, the Indian central bank’s past omissions—the failure to accumulate reserves because of a switch of a hands-off exchange rate policy and a lax monetary policy—return to haunt it once more.