How do rbi maintains the rupees level

The trade war is the new weapon in town. India, with its past experience of relying on higher duties to curtail imports, could use it to curb the current-account deficit, as Indonesia recently did. In the aftermath of taper-tantrums in , India hiked import duties on gold bullion and jewelry. That saw inflows shrink, helping narrow the current-account gap.

This time around, electronics imports have outstripped gold. The RBI can open a special swap window for oil marketing companies like it did in That would take a sizable amount of dollar demand off-market and boost the rupee. Back in , domestic exporters and importers were prevented from re-booking forwards contracts, and this could again provide support for both spot and futures, Barclays said.

Verbal intervention is always an option. Some officials like Rajiv Kumar, vice chairman of the government think-tank NITI Aayog, have maintained that the rupee is overvalued on a real effective exchange rate level. Still, the government has also made clear all options to support the rupee are on the table. Continued falls in the rupee - down more than 10 percent since May partly in a reflection of a broader selloff in emerging markets - could prompt stronger measures either from the RBI or the government.

The RBI may intensify its efforts to drain liquidity and may even resort to an outright hike in the policy rate, analysts said. This is considered to be the same as it is kept with the RBI. The RBI can change this ratio from time to time at regular intervals. When this ratio is changed, it impacts the economy.

For banks, profits are made by lending. In pursuit of this goal, banks may lend out maximum amounts, to make higher profits and have very little cash with them. An unexpected rush by customers to withdraw their deposits will lead to banks being unable to meet all the repayment needs. Therefore, CRR is vital to ensure that there is always a certain fraction of all the deposits in every bank, kept safe with them.

While ensuring liquidity against deposits is the prime function of the CRR, it has an equally important role in controlling the interest rates in the economy. The RBI controls the short-term volatility in the interest rates by adjusting the amount of liquidity available in the system. Too much cash in the economy leads to the RBI raising interest rates to bring down inflation, while the scarcity of cash leads to the RBI cutting interest rates, to stimulate growth in the economy.

Thus, as a depositor, it is good for you to know of the CRR prevailing in the market. It ensures that regardless of the performance of the bank, a certain percentage of your cash is safe with the RBI. RBI revises the repo rate and the reverse repo rate in accordance with the fluctuating macroeconomic conditions. Whenever RBI modifies the rates, it impacts each sector of the economy; albeit in different ways. Rupee was again devalued on June 06, to correct the external payments which had reached a state of critical disequilibrium.

The measure was also resorted to with a view to maintain the existing exports by bringing about a better alignment between internal and external prices and thus giving exports greater competitive strength.

Corresponding new rate of exchange was Rs.