Assuming further big-scale currency appreciation is off the agenda, India’sWell, perhaps Lex didnt notice but India just did the first one, second one and it has a fair bit of third one already. And one didnt see the fourth option, and that is to push for Indian firms to invest outside, so to take the damn rupees out of the country rather than the familiar giant sucking sound so beloved of the Indian banks and corporates (and individuals, but they are pipsqueaks compared to the big chaps).
policymakers have three options. They can continue hiking bank’s reserve
requirements, which has the added advantage of curbing credit growth. Second,
interest rates could be cut to lower the cost of sterilisation – but that would
risk stoking an already hot economy. Last, policymakers could follow their
neighbours and revert to old-fashioned capital controls. India has already
dallied with this, imposing curbs on external commercial borrowing and
participatory notes, but could extend these to real estate or local banks’
foreign currency operations. In Asia, the least palatable option can never be
It promises tobe quite interesting to see how the Reserve Bank of India handles this situation! :)
All this to be taken with a grain of piquant salt!!!