Exploring the concept of a carry trade, where borrowing a low-interest currency and investing in a higher-interest currency can affect the value of the rupee and create banking liquidity. The chapter also discusses the potential consequences when a swap deal between the RBI and banks concludes, leading to a demand for dollars and uncertainty about the RBI's future actions.
Last month, we wrote about how the RBI is defending the rupee. It was trying hard to prevent the rupee from depreciating against the dollar. But now, a decision from the past could be coming back to haunt it. And in today’s episode for 20th October 2023 we give you a simplified version of what might be going on.