Barclays: RBI’s 5 options for the rupee | beyondbrics

Barclays: RBI’s 5 options for the rupee | beyondbrics:

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Last week, India’s policy makers surprised everyone by taking action against the depreciating rupee, with the Reserve Bank of India (RBI) tightening monetary policy while senior ministers decided rules on FDI should be relaxed.

But is it enough? And what are the next options?

The RBI had hoped to stem speculative pressures on the currency by making short-term borrowing more expensive, but economists at Barclays say this could be unsuccessful – counterproductive, even – unless followed up by other measures. Barclays suggests that the stability of the rupee last week was driven by external factors rather than the policy changes, and the main effect was to cause a sell-off in bonds, after recent inflows – see chart below:

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