ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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From Exchange Rate to Economy

From Exchange Rate to Economy ON November 19 when the rupee touched 37.52 to the dollar, the then governor of the Reserve Bank had declared that at that level the fall in the rupee's exchange value had bottomed out, that "in view of the fundamentals, there is no ground for a further weakening of the rupee" and that "the Reserve Bank will not hesitate to intervene to prevent any overshooting". Actually the Reserve Bank has been intervening quite regularly in the foreign exchange market, in the process using up perhaps $ 1 bn of its foreign exchange reserves to support the rupee at different levels during its slide over the past three and a half months. Towards the end of this week, with the rupee touching 38.40 to the dollar, the Reserve Bank has taken its intervention a step further by postponing the phased reduction of the banks' cash reserve ratio and introducing fixed rate repos to mop up liquidity in the system, raising the interest rate on post-shipment export credit from 13 to 15 per cent and monitoring the cancellation of forward foreign exchange contracts by corporates.

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