Article;
RBI Back to Buying Dollars to Shore-Up Forex Reserves
Comment;
RBI's buying of
dollars will make the dollar stronger and will affect CAD by depreciating
Indian-Currency. Demand for dollar will go-up and with it its prices and other
prices, too. It will worsen the CAD position by making imports dearer but may
boost exports by depreciation. Internally it will push up employment and
prices. It is inflationary. Prices of oil and gold, whose demand is almost
inelastic, will go up globally, also, as the situation improves, the global
demand…The present scenario suggests that it will foster exports as demand in
the developed economies is catching up but will deteriorate CAD by making
imports costlier. The global demand is increasing which means that inflation in
the emerging and developed countries will go up. Some countries have set
inflation target for themselves; they want inflation to be higher. Therefore
globally the expectation is that prices will go up and that will increase our
CAD. RBI’s action can do both, it can increase exports by making them cheaper
and at the same time it can decrease imports by making them costlier. But our
import demand is largely inelastic…
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