Exchange Rate Trends and Management in India

On the intraday dynamics of oil price and exchange rate: What can we learn from China and India?

“…A major depreciation in USDINR took place during July-August 2013 when it was traded at as high as 68.85 per US dollar. This depreciation can be attributed to several reasons, such as (i) the Indian subsequent market reaction, (ii) the rapid increases in the demand for the US dollar from importers, and (iii) capital outflows (see RBI, 2015;Hutchison and Pasricha, 2016). Since the middle of 2014, USDINR shows a gradual decline in its value until 2016 on account of capital outflow and weak export (Gurumurthy, 2018).…”

Facing the Quadrilemma: Taylor rules, intervention policy and capital controls in large emerging markets

“…In particular, the Reserve Bank of India formally states that is primary objective is to maintain price stability, while "…keeping in mind the objective of growth" and announced recently a "flexible inflation targeting" regime. 3 Empirical work has found that India alternates between an emphasis on output and inflation in pursuing domestic macroeconomic stability (Hutchison et al 2013;Gupta and Sengupta, 2014;Kaur, 2016), and maintaining orderly conditions in the foreign exchange markets as an official objective of the Reserve Bank of India (RBI) (Hutchison and Pasricha, 2016). RBI is the manager of the foreign exchange regulation act (FEMA, 2004), which also gives it the power to impose capital controls.…”

“…These considerations make understanding the linkages between monetary policy, capital controls and foreign exchange market intervention operations central to a study of macroeconomic management in India. Hutchison and Pasricha (2016) find that India has followed active foreign exchange market intervention and capital control policies. They argue that intervention policy is mainly directed 3 The Reserve Bank of India (July 2019) states that the goals of monetary policy are: "The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.…”

“…Control of international financial capital movements is another policy instrument that has been frequently employed to influence financial flows in and out of India and the exchange rate (Hutchison, Pasricha and Singh, 2012;Patnaik and Shah, 2012;Hutchison and Pasricha, 2016).…”

“…We use time-series methods for our methodology and employ quarterly data. Additional features of our analysis are the incorporation of a measure of "adequate" reserves, calculated by the IMF, into our intervention equation, and a measure of capital account openness, based on the work of Pasricha et al (2015) and Pasricha (2016), into the interest rate rule (Taylor rule) and intervention rule equations.…”