Madan Writes……one area which has not really been discussed in detail is the currency market, which is probably the burning issue in the economy with the rupee falling quite prodigiously and few solutions on hand. Quite clearly the MPC has preferred to look at the inflation target exclusively and pay less attention to the currency market where an increase in rates could have stalled the decline in FPI flows which are negative presently. Therefore, it does appear that there may not be too much of intervention of the RBI in the currency market which will find its own level.
Two things could happen now…..Higher nominal GDP (inflation on a rising trajectory) along with steepening yield curve and falling currency.