Macronomics: Why Did RBI Print Rs. 83,000 cr. To Buy Dollars?

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Today in Macronomics we consider an interesting point: RBI’s actions on the rupee-dollar, after demonetization. They’ve been buying dollars. A lot of them. Forex reserves now stand at $420 billion (from $370 bn in Dec 2016) if you include forward purchases that RBI has made. About Rs. 83,000 cr. has been printed to buy rupees, and another Rs. 130,000 cr. remains to be printed if RBI goes and exercises its forward contract purchases. That’s made things wonky.

Note: We’ll also speak about why we think the situation will reverse soon. We’re at an interesting turning point.


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2 COMMENTS

  1. Very interesting DD.. Question, if flows were to reverse, RBI will start buying Bonds at some stage, right? Why is there risk for LT bonds? Arguing differently, albeit with same outcome, higher likelihood that easy liquidity will continue, fueling inflation and lead to rate hikes. Hence, bond yields may rise/ prices fall.

    • When flows reverse RBI sells dollars. If that leads to a liquidity crisis they may buy bonds (they’ve done this in the past) but right now there is SOOO much liquidity this is unlikely. But yyou’re right about the high liquidity fuelling inflation. Basically risk-reward seems to favour the trade of being with shorter term bonds, Dhiraj.

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