Defending the rupee

Market adjustment should not be delayed for long

The Reserve Bank of India (RBI) on Wednesday announced measures aimed at boosting foreign exchange inflows to support the rupee. The rupee is under pressure because of a variety of reasons. Higher commodity prices and increasing imports have pushed up demand for foreign currency. The trade deficit in June, for instance, expanded to $25.6 billion and the current account deficit (CAD) is expected to cross 3 per cent of gross domestic product this fiscal year. While the projected level of the CAD is not particularly alarming, the problem is that India is also witnessing large outflows on the capital account.