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On Wednesday, the rupee came within sniffing distance of the 82-to-a-dollar mark, falling to a new record of 81.95. That it has weakened from 80 to about 82 in barely a week reflects global conditions. Blame it on the dollar’s broad strength amid a risk-off scenario that has been gaining influence in line with the Federal Reserve’s hawkish utterances on going all out to crush US inflation. More than 10,000 crore of foreign institutional investor money is reported to have left Indian equity markets in the last week. Fully-floating currencies have fallen harder than the rupee, which has had the Reserve Bank of India selling dollar reserves in its support. Our forex vault is nearly $100 billion lighter than it was at its peak in September 2021. As Fed hikes are likely to carry on, talk has arisen of unconventional measures to conserve forex. Might clamps on non-essential imports and tighter capital controls be entertained? Whatever Indian authorities do, they must take into account its disruptive impact. It’s unclear if the rupee is staring at a possible rout that could justify such a harsh response. We should explore other ways to get dollar inflows before raising market barriers.

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