Unmade in America
Looking back this year, in January there was an argument for cutting interest rates to reduce interest differentials with the rest of the world. Since July, when the US started cutting rates, capital inflows into India tripled. This was to a large extent in response to the interest differential that had reached nearly 500 basis points. In its attempts to prevent rupee appreciation, the RBI was buying up dollars which it was then trying to sterilise. Monetary policy was being implemented through RBI intervention in currency markets, and the sale of government bonds to sterilise the impact of its intervention. The rupee was pegged to the US dollar and kept flat between Rs 39 to 40, except for a brief period when the
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