{"id":692939,"date":"2026-06-09T05:51:11","date_gmt":"2026-06-09T05:51:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/692939\/"},"modified":"2026-06-09T05:51:11","modified_gmt":"2026-06-09T05:51:11","slug":"india-may-have-brokered-a-rupee-truce-but-hasnt-won-peace-yet","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/692939\/","title":{"rendered":"India may have brokered a rupee truce, but hasn’t won peace yet"},"content":{"rendered":"

India has announced a raft of measures to revive global confidence in the sagging rupee<\/a>. The best thing about the package announced Friday is what\u2019s not in it: capital controls.<\/p>\n

During the 2013 currency crisis, authorities had slashed the dollar amount that individual savers could legally take out of the country in a year. This time, they wisely left the $250,000 limit untouched. Nowadays, when that money is widely used for everything from funding foreign education to buying stocks in the US and homes in Dubai, such a step would have been deeply unpopular.
It might even have backfired. The Reserve Bank of India has already made one big move to crush the buildup of speculative short positions in the rupee, though it had to be partially rolled back. The measure did nothing to dispel the negative sentiment around the exchange rate. In fact, it may have made things worse by signaling that the central bank was scraping the bottom of its traditional rupee-defense toolkit.<\/p>\n

So instead of sticks, authorities decided to go with a carrots-only approach, telling state-run firms and local banks to raise dollars overseas, bring them home, and get a big discount on their hedging cost until Sept. 30. Although I wasn\u2019t expecting the RBI to once again subsidize the cost of external borrowing \u2014 it was controversial even during the emerging-market selloff sparked by the Federal Reserve\u2019s 2013 taper tantrum \u2014 I guess the thinking was that if it worked then, it would work again.<\/p>\n

Sure enough, borrowing overseas \u2014 and raising foreign-currency deposits from the diaspora \u2014 might buy the rupee a breather. Analysts expect that the latest package will bring in $50 billion. Some of the funds may come in via the bond market, where foreigners have been given tax breaks and more freedom to invest. But the bulk may be brought home by local borrowers scooping up three- to five-year money overseas, provided that the RBI gives them a similar concession on hedging cost as in 2013: roughly 3% a year. That\u2019s the burden taxpayers will bear, via reduced central-bank dividends to the government.<\/p>\n

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However, the euphoria around short-term inflows won\u2019t fix the core weakness in India\u2019s external accounts. An economy that topped all forecasts and grew 7.8% in the March quarter \u2014 when the Iran war had already begun \u2014 shouldn\u2019t be struggling with just $3 billion in net annual foreign direct investment. Nor ought it to be fighting so hard to bring back financial investors who have taken out $35 billion from the stock market over the past 12 months. Telling them that any individual can park money with an Indian portfolio manager isn\u2019t of much use when they can as easily enter via a foreign fund. The problem is, they don\u2019t want to. Not right now.
A part of the pessimism has to do with paucity of imagination. Beyond building power-guzzling data centers, India lacks a compelling story for global capital hunting for AI innovation. While that isn\u2019t something a central bank can do much about, it can at least give savers more remunerative interest rates. What\u2019s the point of near-8% growth in gross domestic product that doesn\u2019t reward households financing the expansion, forcing them to chase risky returns outside of bank deposits?It might have been acceptable if frothy stock prices were leading to new jobs or wage increases. But that isn\u2019t the case, either. The net result of India\u2019s supposed pro-growth policies is that they\u2019re keeping valuations high \u2014 so that foreign firms and private equity investors in startups can get profitable exits. Instead of being just another gauge for the economy, the market has become its proxy. <\/p>\n

As part of the 2013 currency rescue, India raised benchmark interest rates to 8%. The then-RBI Governor Raghuram Rajan had to leave them there for a year, even though the overnight US rate was near zero throughout. He was roundly criticized for keeping a tight lid on liquidity.<\/p>\n

That playbook, which helped the central bank re-establish its inflation-fighting credibility, isn\u2019t getting enough attention. Sanjay Malhotra, the current RBI chief, is sticking with borrowing costs that have fallen by 125 basis points since he took over in December 2024. On Friday, the monetary policy committee decided to stay pat at 5.25%. That\u2019s too small a premium for investors when the Fed\u2019s target range is 3.5% to 3.75%, and expectations are growing that its next move will be a hike. <\/p>\n

It\u2019s very clear what authorities are trying to do here \u2014 stabilize the currency, keep domestic rates low, and avoid capital controls. Juggling with the three objectives requires putting taxpayers on the hook, which is what an expected 3% concession on dollar borrowers\u2019 hedging cost effectively means. But ultimately, if capital controls are to be avoided, and the rupee is to be saved, then there\u2019s no real choice. The only path to lasting peace on India\u2019s external accounts goes through higher rates.<\/p>\n

(The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views of the publication.)<\/p>\n","protected":false},"excerpt":{"rendered":"India has announced a raft of measures to revive global confidence in the sagging rupee. The best thing…\n","protected":false},"author":2,"featured_media":692940,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[28,101,77510,300516,300514,10975,300515],"class_list":["post-692939","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-rupee","tag-rupee-and-dollar","tag-rupee-today","tag-rupee-vs-dollar","tag-us-dollar-and-rupee"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/692939","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=692939"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/692939\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/692940"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=692939"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=692939"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=692939"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}