The following is part of your required reading in BoP. Currently the rupee is at $1 = Rs. 52 +..

Questions are raised whether it will depreciate to Rs 55 or even Rs. 57. As you know, the ER depends on the availability of dollars in he FX market. The reasons why the rupee may stabilize at the current rate are: Since the US and the Euro zone are not likely grow any faster because of the continuing economic crisis, the demand for oil may not rise. Hence the price of oil is likely to stabilise and our oil import bill may not go up. To that extent, there won't be dollar shortage on this account. NRI Deposits: RBI raised interest rates on foreign currency deposits w.e.f. 23 November 2011 Non-resident (External) Rupee (NRER) 1 - 3 yrs: interets rate should not exceed LIBOR plus 275 bp compared to 175 bp earlier (in force since 15 Novemebr 2008) Foreign Currency Non-resident (Banks) (FCNRB) all maturities interest rate should not exceed LIBOR plus 125 bp compared to 100 bp earlier (in force since 15 November 2008) ECB: RBI raised the all-cost ceiling on ECB by 50 basis points w.e.f. 23 November 2011.. By paying a higher rate, larger volume of dollars could be borrowed. The all-in-cost for ECBs has been revised as under: All-in-cost over 6 month LIBOR* Average Maturity Period Three and up to five years More than five years Existing 300 bps 500 bps Revised 350 bps 500 bps

* for the respective currency of credit or applicable benchmark RBI apparently intervened in the FX market to the tune of $ 2.5 - 3 billion to control volatility From the above, notice that we also appear to be in the same 'wrong paradigm' that the ADBI paper on the 1997 crisis mentioned about Thailand, viz. reliance on the capital a/c to answer the problems of current a/c - India is not able to meet the export target, and sizable balanace of trade deficit is likely - see Slide 92. There is one more reason why RBI did not intervene aggressively to stop the rupee from depreciating: viz. tight rupee liquidity in the market. If it sells dollars to increase supply and hence arrest the depreciation, it means absorbing rupees from the market. In early December, banks were borrowing between Rs. 1 lakh crore and 1.2 lakh crore daily at the repo window, which is an indication of tight liquidity.(Business World, 5 December 2011). That explains why measures have been announced to attract dollars through other channels listed in my email below. The following is part of your required reading in BoP. Currently the rupee is at $1 = Rs. 52 +.. Questions are raised whether it will depreciate to Rs 55 or even Rs. 57. As you know, the ER depends on the availability of dollars in the FX market. The reasons why the rupee may stabilize at the current rate are: