The going’s got a lot tougher

The Reserve Bank of India’s (RBI) recent decision of giving local exporters a fortnight to convert half of their foreign-exchange holdings into rupees is symptomatic of the anxiety gripping India’s macroeconomic managers. Any textbook primer would tell us that currency markets, pretty much like most commodities, are largely governed by the laws of demand and supply. Stronger demand for a currency will push up its price and vice versa. If the RBI has asked exporters to convert dollars to local currency, it would imply that the central bank expects the rupee to worsen.

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