Article;
BofA-ML sees RBI shoring up forex cover with Re at 62 levels.
Comment;
It is in the interest of the
RBI to keep the rupee value strong because then it will have to pay less every
dollar, for imports too, and build a strong balance sheet by accumulating more
dollars... If the RBI sells dollars and make the exchange rate more affordable
it can buy more dollars per rupee. And, by doing so it can keep the demand and
supply of US $ and the Indian-Rupee match each other. Now that we have accepted
that, again, the Indian rupee is overvalued (at Rs 62.5) and we need (together
with the RBI) to bring it closer to its real value or inflation adjusted value
near to Rs 58-60 according to the REER index., We advise the RBI to recoup
dollars when the dollar is high. I do not know why the RBI did not do the same
when the rupee was trading 45. The answer probably lies in the fact that the
RBI (may be) was busy in accumulating gold. The RBI too with the investors
accumulated a lot of gold last year... which is not a bad investment… gold and
dollars are substitutes to each other… both enjoy the status of safe-heaven… Therefore we should see gold as a part of
foreign currency reserves and should not press the panic button, and, wait for
the right time when it is down and does not increase demand and price of dollar
or if it is brought down by supplying more dollars. The question is how much
the rupee has a value in the RBI’s mind because it has the autonomy to print
currency…
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