On the face of it, the fall in the rupee to record lows poses a dilemma for the Reserve Bank’s MPC, which earlier today voted to keep the repo rate unchanged at 6.50%. But the bigger picture is that the currency has been one of the most stable against the US dollar over recent months, helped in part by FX intervention. The bigger constraint on monetary policy is the strength of headline inflation, but that is likely to have peaked and we think the repo rate will start being lowered from April.
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