Rupee defence strategy: Why RBI should embrace currency flexibility

India now holds about $650 billion in reserves, enough to finance nearly a year of imports. The problem is that global financial markets have even more firepower

In a series of recent pieces, we have been arguing that the just-ended Reserve Bank of India (RBI) regime made a radical change in exchange rate policy, which reduced export competitiveness and rendered monetary policy inappropriate for a slowing economy. And in the process the RBI’s intervention to prop up the rupee has led to a reserve loss of about $200 billion over three episodes, with over $50 billion lost since end-September alone. In this article, we want to go one step further, emphasising the serious risk this policy creates: The danger of a highly disruptive speculative attack against the