Photo: ReutersThe Indian rupee rose sharply against the dollar last week. Most of the traditional indicators of the real effective exchange rate suggest that the Indian rupee is overvalued. Some have suggested that domestic interest rates need to be cut sharply to prevent further appreciation of the rupee. Sterilized intervention in the foreign exchange market is a better tool to deal with the exchange rate challenge. The increase in foreign exchange reserves—which went up by over $1.5 billion in the week ended 28 July—shows that the central bank has been buying dollars to keep the rupee down.

Source: Mint August 06, 2017 18:33 UTC