Indian Rupee: Extraordinary Growth Requires RBI Intervention?

The RBI (Reserve Bank of India) is between a rock and a hard place: an economy growing at an incredible rate (GDP growth is among the fastest globally) and a growing Indian rupee that continues to increase in value thanks to significant volumes of Foreign Institutional Investments (FII, Foreign Institutional Investor).

This year alone, FIIs have injected around US$20bn into the financial market, resulting in an appreciation of the Rupee by more than 8%. Unfortunately, this increase coincides with the current desired recovery in exports, a coincidence that could be crucial for the recovery.

Many emerging countries find themselves in similar conditions today: the possibility of interest arbitrage and significant economic growth transform these countries into a magnet for foreign investors. Precisely in order to strengthen exports, these emerging countries are resorting to a devaluation of their currency.

Brazil, for example, has embarked on a road to capital controls while China continues to resist American pressure to open up the Yuan to the world market.

Some Indian finance experts argue that the intervention of the RBI will not be long in coming but that it will be necessary to pay attention, not only to export activity, but also to local investments. The growing appreciation of the Indian rupee could create higher inflation but would nevertheless improve the importation of raw materials at reduced costs, thus facilitating the activity of many foreign companies that are taking the path of local investment.

Therefore, these assumptions are not to be considered as a rule to which the RBI must strictly adhere: the exponential growth of the Indian currency is nothing more than the result of a development policy of the RBI that we could define as "unbridled".

Analysts believe that the central body will soon feel obliged to intervene to "cleanse" the market of the dollar, an impervious action for the Mumbai-based institution which will have to fight inflation and keep the appreciation of the Indian currency under control .

READ ALSO:

The success of Italian companies in India

Internationalizing your business abroad: strategic choice or opportunity?

Digital Export Manager (DEM): internationalization in a digital context