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22 Sep, 2013

Are currency speculators now manipulating the rupee? – The Hindu

We may be reaching a point where the artificial situation in which a country with a large current account deficit has a relatively stable and even occasionally appreciating currency because of large capital inflows cannot hold anymore. But the timing of the rupee’s collapse is not easily explained only by the conventional fundamentals.

Enter, therefore, the ‘speculator’, who has decided to bet against the rupee, as a potential explanation for the rupee’s condition. The government and central bank are clearly looking in this direction. Besides working to increase foreign capital inflows into the country, a number of measures have been taken to reduce dollar asset accumulation by residents and prevent hoarding of the dollar by institutions involved in trade in the currency. Moreover, the Reserve Bank of India, which has been pointing fingers at the currency derivatives market as a speculative hub where the dollar rules higher, now argues that prices in those markets, or those driven by speculation, are beginning to influence spot dollar prices in terms of the rupee.

Read the rest: A speculative attack on the rupee? – The Hindu.