RBI Buys Dollars...

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…