Rupee's managed float: Should RBI shift gear?

To Mint Street's credit, India resolved a macro trilemma in its own special way. Recalibrate it for a more market-priced rupee if the expected trade gains outweigh price-stability risks

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The Indian rupee has been under pressure in recent months, with more of it being converted into US dollars than the other way round. Last week, its exchange rate slipped below ₹85 to the dollar. The truly remarkable bit, however, is how gentle the slide has been, given the recent outflows from share sell-offs by foreign investors, strong dollar demand from importers and the greenback's global gains in anticipation of Donald Trump's policies. Attribute this to how actively the Reserve Bank of India (RBI) has been managing the rupee's managed float. Since RBI intervention in the forex market has winners and losers both, a debate has arisen over it. A sharp drawdown of its forex reserves is a tell-tale sign of heavy dollar sales to support the rupee's value. Left alone, it would have fallen more. Critics of this tactic argue that the pursuit of short-term rupee stability has kept it overvalued, broadly, making our exports dearer overseas than stuff from rival countries that let their currencies slide freely. Last week, Abhishek Anand, Josh Felman and Arvind Subr