Article;
FIIs pull out Rs 3000 Cr from Indian equities in a week.
Comment;
We repeatedly read that foreign exchange inflows are leaving
the Indian shores amid depreciating rupee. Then why not the RBI using its
foreign exchange reserves and keeps the Indian rupee strong and attract capital
inflows. It will also help mitigate the hedging cost for foreign investors and
will attract more capital inflows. A less volatile exchange rate and a strong
(expected) one will attract more foreign investment to bridge the CAD. This is
one way. Exports are the other, by depreciating currency. The RBI has both the
ways which can reduce the pressure on currency and CAD. Both are inflationary,
more or less, because they will increase employment and income somewhere,
foreign or at home. But since Indian-Economy is close to full-employment it can
choose to lower money- supply, inflation and depreciation by choosing higher
interest rates which will also attract foreign investment (already suggested by
many). A strong currency and higher interest rate will help us overtake the US as an
investment destination. Higher interest rates and low inflation are good for
savings and investment, income constant. And good for appreciation and
strong-currency, too…
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