Authors

1. Dr. Shalini Talwar

Affiliation

• Associate Professor Sinhgad Institute of Business Management Mumbai

Abstract

In the post liberalization era, India has been operating on a managed floating exchange rate regime introduced in March 1993, where rupee exchange rate is market determined with provision for timely intervention by the RBI to counter volatility. Openness and integration in the post liberalization era have resulted in manifold increase in the flow of foreign capital to India and boost in trading activity. Increased capital mobility has posed serious challenges before the regulators in managing exchange rates as rupee has shown considerable volatility. The RBI has intervened time and again to moderate demand and supply of rupee and foreign currency to control erratic fluctuations in rupee value over the past two decades. Unlike the strong intervention in 2008-09, in 2013 RBI has been cautious in direct intervention in propping rupee and has instead undertaken a number of indirect measures to defend the rupee. It has shown a more disciplined adherence to a hands-off forex policy.
The history of RBI intervention and its recent role in propping the plunging rupee is the central theme of the paper. RBI’s selective control in the forex market has come under scanner in the recent months, as it has been unable to control the free fall in rupee. Analysts are now wondering whether it is time for the RBI to consider alternative exchange rate policy options in place of managed float. The current study examines whether it is the right time to move away from the current system or it is beneficial to the country to continue with the same system of intermittent intervention in the times of volatility.
The author believes that in the given set of circumstances, continuation of managed float is the best alternative as the Indian economy is too fragile to absorb the adjustments required in the wake of leaving rupee completely to the market.

Keywords

Current account deficit, , full convertibility, , intervention,, liquidity, , monetary policy, RBI,, rupee exchange rate, rupee volatility

References

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