The Fed cut rates, and India appears to have responded by raising the limit on MSS issuance by RBI. Let's chalk out the rough fiscal costs --
- Each month with over $10 billion of MSS issuance uses up Rs.40,000 crore of bond issuance. Roughly speaking, assuming a net cost of 4%, a stock of MSS of Rs.250,000 crore runs up a tidy cost of Rs.10,000 crore a year.
- In addition, assuming India has roughly $125 billion in USD assets, each 1% depreciation of the USD is a cost of roughly $1.25 billion or roughly Rs.5,000 crore on account of depreciation of the reserves portfolio.
Ila Patnaik looked at monetary policy in Indian Express a few days ago.