The RBI Move

I was on small vacation to my home town during the first half of the week and RBI made the big news by announcing several steps to imagesstop the slide in the Indian rupee on Monday, which hit a record low of 61.21 last week. RBI came under severe criticism let’s try to analyze in 10 points the action and effects:-

1)      RBI has increased the Marginal Standing Facility (rate at which banks borrow from the RBI using their statutory liquidity ratio securities as collateral) rate. So far, banks (bearish on the rupee) borrowed from call money markets and bought dollars in the forward markets expecting the dollar to rise. Since, borrowing short-term money will now be costlier; banks will most likely cut their forward positions and reduce speculative trading. This will reduce pressure on the rupee.  Continue reading “The RBI Move”