Ouch! It hurts...

IIPM PUBLICATION

But at the same time, it is expected that this rupee appreciation phenomena might not be a long phenomena in the making, as Rajiv Jain, Sr. Consultant, Basix Forex and Financial Services, puts it, “Fundamentally, we are already sitting on a more than 11% overvalued rupee, which is beyond central bank’s historical tolerance level, and our trade deficit is growing every quarter; so ideally, we should witness a large upside correction sooner than later.” But such a correction can occur only if the RBI endeavours to interfere in the foreign exchange market, and that too in a gargantuan manner; especially given the fact that neither our oil import bill, other imports, nor RBI’s past relatively smaller interventions have had the required effect. So what can India Inc. expect in the near future? Would the RBI control the rupee appreciation, and that too at the cost of allowing inflation to grow further? Well, if you belong to this school of thought, we’d recommend that you quickly choose your favourite road... and take a walk :-)

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative