The most dangerous thing for a Central Bank Governor to do was talking about exchange rates fluctuating, CB Governor Dr Indrajit Coomaraswamy said.We are trying to make a framework and within that have a comparative exchange rate, he said.
The fundamental problem is the out goings are more than the inflows in terms of foreign exchange, which means that there is an underlying pressure on the rupee all the time. So the way to get over that is to either increase our exports of goods and services or get more non debt creating inflows as FDI’s in to meet the import debt servicing that go out of the economy. Most months there is a deficit which keeps the rupee constantly under pressure.However defending the rupee with foreign reserves was not sensible because it always led to a sharp depreciation of the rupee. He pointed out that the Central Bank spent $ 4.2 billion in 2011-2012 which led to a 14% depreciation and US$ 2.1 billion in 2015 that followed with a 9% depreciation of the rupee.
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