RBI faces a currency conundrum

The rupee has appreciated 6.3% against the dollar since the beginning of this year

The rupee’s sharp appreciation against the dollar has given traction to calls for the Reserve Bank of India (RBI) to intervene to ensure the domestic currency finds its fair value.

The RBI has said it intervenes in the currency markets to smoothen out excess volatility. But this strategy might be responsible for the deluge in foreign capital flows and the consequent strengthening of the rupee. Foreign investors have been net buyers of Rs 1.28 lakh crore worth of debt since the beginning of this year, having almost exhausted their quotas for government and corporate bonds.

The rupee has appreciated 6.3 per cent