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RBI Must Keep Rate Hike Options Open to Defend Rupee Against Strong US Dollar, Says SBI Economist
- •State Bank of India Group Chief Economic Advisor Soumya Kanti Ghosh stated that the RBI should keep all options open, including rate hikes exceeding 25 basis points, to protect the rupee from a strengthening US dollar.
- •A rampaging US dollar index threatens emerging market currencies, making it difficult for the central bank to hold currency levels despite heavy foreign exchange interventions.
- •Temporary interest rate increases could improve investor returns and risk premiums, encouraging capital inflows and stabilizing the rupee similar to past measures in 2013, 2020, and 2022.
- •Nomura's Sonal Varma noted that India faces a triple threat of rising global bond yields, elevated energy costs, and artificial intelligence disruption, requiring a broader policy package beyond monetary interventions.
- •Experts emphasize that liquidity withdrawal, open market operation sales, and fiscal measures like adjusting domestic retail fuel prices must share the burden of economic adjustment.
Key Questions Answered
Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India, suggested that the Reserve Bank of India should keep all rate hike options open, including increases exceeding 25 basis points, to improve investor returns, attract capital flows, and stabilize the rupee against a strengthening US dollar.
According to SBI economist Soumya Kanti Ghosh, similar temporary interest rate increases to support the currency and provide a higher risk premium were previously implemented in India in the years 2013, 2020, and 2022.
Importing nations like India face a triple threat consisting of rising global bond yields, elevated energy costs, and artificial intelligence disruption, which could pressure software earnings and potentially shift the balance of payments into a structural deficit.
