RE:Rs Vs Dollar
by indiman on Jul 24, 2007 02:58 AM Permalink
Inflation in India has prevented the RBI from stopping the appreaciation of Rupee at 45 Rupees per dollar. RBI keeps the rupee weak against the dollar by buying lots of dollars coming from foreign investments going through various banks, IOB, SBI etc... But more and more dollars RBI buys the inflation in India bacomes higher because more dollar bought means more Rupees sold to banks like IOB, SBI, this means more money in India chasing few goods which is inflation, which is why the commodity prices were so high recently. Due to the inflation risks RBI has let the dollar slip to 40 Rupees but is trying to hold it there. When the Inflation comes back again due to all the excess Rupee in the system and public pressure increases RBI will have to stop buying dollars and at that time thr Rupee will increase further. This cycle will continue till the US increases their interest rate or acts on the fundamental problems in their economy which is astronomically high budget and trade deficit. There is nothing much that can be done by foreign banks like RBI other than the above. The other solution is the exporters raise the price of goods sold to America or set up production, service centres in America which is becoming. The risk of what the RBI is doing is great because the tiger economies of east Asia did the same thing five years ago, Mexico as well i.e. artificially prop up the dollar to keep their currencies weak and all those economies imploded. So if RBI doesent watch out carefull
RE:Rs Vs Dollar
by ASHOK on Jul 24, 2007 08:20 AM Permalink
Agreed with your analysis.
next step should be import of Capital goods with this weak USD. Why India is failing to do that !!! Instead India is happily building its reserves and counting the low interest rate on its US Bonds !!!
It has been more than 3 , since Montek singh mooted the idea of utilising a very smallpart our FE reserves to support India Infrastructure needs.
It will take 10years for nuclear power plants, till than we can invest in Gas based power plants. Finally we need electricity at competitive rates.
RE:Rs Vs Dollar
by Maharaj Malik on Jul 24, 2007 02:27 AM Permalink
no ..u r not 100% right..10% right may be.. 1. dollar is weakin' globally. Some oil producing countries pegging their currency with EURO and other currency basket. 2.US economic outlook is gloom, fed is toying with interest rate, housing sector gloomy , lowering demand in US
