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Letters: Capital account counts

Business Standard  |  New Delhi 

At the press conference after the mid-quarter review, Reserve Bank of India Governor Raghuram Rajan said the emphasis was on maintaining the internal stability of the rupee that should ensure it externally also. I am not sure of this. This view is a hangover from the days of the purchasing power parity theory when the current account decided the exchange rate. Today, it is the capital account that dominates the balance of payments where hot money flows, of the type we see in the case of foreign institutional investors, have a significant influence on the determination of the rate irrespective of domestic inflation. We have seen it in India and elsewhere also.

A Seshan Mumbai

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First Published: Sun, September 22 2013. 21:02 IST