Wednesday, May 09, 2007

Understanding the INR

Arvind Subramanian has an opinion piece in Business Standard titled Action on the currency front inevitable. Update (15/5): Deepak Lal has a very clear-headed piece where he sorts out the confusion.

1 comment:

  1. 1.With bulging FX reserves, it is prudent to diversify the reserves across currencies further.
    The MSS bonds would bear lower interest rate if CRR is reduced.(Banks would be happier with a lower interest rate cut-off in auctions rather than no interest).
    The US$ bought during intervention should be used for investing in higher yield non US$ assets(certainly higher than interest earned on US Government paper and if possible interest paid on MSS bonds) say partly in Brazilian and other emerging market Government bonds . If the RBI is bullish on gold then that too may be purchased in much larger quantitites. Crude oil may also be purchased on an ongoing basis to build a strategic reserve.

    2.If and when the US$ are pulled out of the country by investors, the US$ will not be brought back to the country by RESIDENTS to soften the blow. Lets not be naive!

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