Agile approach

Rupee should be allowed to adjust to lower levels

A key element in maintaining financial and macroeconomic stability in a developing country with a persistent current account deficit is stability on the external front. Recurring sharp currency movements can make it more challenging to maintain macroeconomic stability, and affect business confidence. In this regard, after the shock of 2013 — the taper tantrum episode — which led to a near currency crisis, the Reserve Bank of India (RBI) has managed the external accounts fairly actively. It has built reserves in times of excess capital flows and used them in relatively difficult times to avoid excess volatility in the currency