The RBI will buy Rs. 10,000 cr. of rupee bonds from banks in an Open Market Operation (OMO) Auction on Jan 20 . Why is the RBI buying bonds? Because it’s selling dollars. Let me explain. The rupee was falling, and falling fast. The RBI wants to defend 68 (and I think, 67.8). In 2016 from Jan 1, the rupee has moved from 66.2 all the way to nearly 68 – which is when the RBI seems to have stepped in. The rupee has been falling – or rather, in the graph below, the dollar has been rising, due to multiple factors – one, that foreign investors are exiting in droves. Two, that internationally, the dollar’s gaining strength. In order to defend the rupee, the RBI has to sell dollars . When it sells dollars, it gets rupees in exchange – and those rupees then get “extinguished” – or in other words, go out of circulation.… (Read On…)
[via Capital Mind]
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