vera_k wrote:kmkraoind wrote:Even during 2008-2009 crisis Rupee stood at 49-50 range. Now its at 51 and still there are no significant FII outflows out of nation. Is this a pure rigging by big players, so that they can get all their black money with a decent profit?
With high inflation, the natural tendency for the rupee will be to depreciate 6-8% a year. In the presence of high inflation, this tendency can be countered if exports, FDI or FII investments grow fast enough. RBI might prefer the devaluation anyway, since it allows them to discourage the flow of hot money while encouraging exports and preserving the forward movement on economic reforms (i.e. no capital controls like in Brazil).
RBI need not "discourage" the flow of hot money, FIIs are already discouraged enough to pull money out of India. We have lost around 1.2-2.0 billion USD/month in cumulative FII inflow this year, 2011 is proving to be another 2008, the only difference being our situation is much worse than 2008. In service sector which now makes up nearly 65% of our economy,we have the highest wage inflation in Asia by a long margin. Spiraling public and private debt, un-curbed inflation, lackluster policies, gilts that have curves flipped..at this rate we'll soon go back to junk status while we are too busy harping about "civilization meltdown" in the west.