Dealing with Competition from China

The revaluation of the Chinese yuan in late July has compelled the RBI to go on an aggressive dollar-buying spree. An additional factor has been the large inflows in the capital account. There was an accrual of as much as $ 3,066 million in reserves in the last week of July as the central bank sought to prevent the rupee from appreciating. To take into account the changing scenario, the RBI now plans to include the Chinese yuan and the Hong Kong dollar in a new six-country index to track the effective exchange rate of the rupee.