The Rupee, Dollar And Election Results

• The now-stable rupee’s once volatile situation, especially its steep plunge during the time of increasing Current Account Deficits (CAD) was a major cause of concern.
• The stock market, which commands more attention than the rupee has reflected overseas’ confidence with the large inflow of capital from foreign institutional investors (FII) causing exponential rise in stock indices.
• This dollar inflow, besides proficient measures of the RBI and govt helped in stabilizing the rupee. So much that the RBI is mopping up portions of dollars to prevent steep rise in rupee’s external value. This would affect competitiveness, badly needed to check CAD.
• Earlier, RBI was selling dollars to support the falling rupee.
• The coming elections are going to be a decisive factor testing the commitment of these FIIs and will largely impact both the stock market and forex market as was seen during the phenomenal rise of stock markets in the run up to these elections.
• This confidence may as easily slide away upon formation of a third front govt, or strengthen even more if a single stable govt is formed.
• Post the elections, strong economic fundamentals, GDP growth will strengthen the rupee, while dull monsoon forecast may have a negative impact.
• Global factors such as the US Federal Reserve’s tapering program, which is likely to tighten the liquidity situation, and the flood of dollars will also influence India’s economic stability.
• RBI governor’s repeated call for synchronization of monetary policies of the developed countries and of the relevant developing ones is pertinent.
• Read at: http://www.thehindu.com/todays-paper/tp-business/the-rupee-the-dollar-and-election-results/article5999698.ece

Exams Perspective:

1. Current Account Deficits (CAD)
2. foreign institutional investors (FII)
3. Monetary Policy
4. Fiscal Policy
5. Rupee Depreciation