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India wants a V-shaped recovery at any cost. But what will RBI do?

How RBI manages recovery demand against threats to financial stability from cheap money may be a more important story for India investors in 2021 than the standard growth versus inflation trade-off

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Governor Shaktikanta Das’s strategy may be to mop up some of the excess liquidity created by dollar purchases by issuing special bonds to banks.

Andy Mukherjee | Bloomberg

5 min read Last Updated : Dec 17 2020 | 8:13 AM IST

A collapse in imports during the coronavirus lockdown has left India awash with dollars. Now a further influx of greenbacks is expected as an embryonic economic recovery draws investors back. To banks, this means one thing: The local currency is a sitting duck for appreciation against a weakening dollar.

Policy makers won’t want a stronger rupee to become a one-way bet, but the market doesn’t believe them to have many other options. What the authorities have done so far — scoop up the dollars by giving banks rupees — has left the financial system swimming in money and threatens to fuel

Topics : Reserve Bank of India Inflation Indian Economy Rupee Shaktikanta Das Economic slowdown US Dollar Currency

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