The Reserve Bank of India's aggressive currency intervention caused the rupee to gain 1.9%
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims·
Currency intervention and hedging costs: a relevant GS3 topic for exchange rate stability and monetary policy.
Why in news
The Reserve Bank of India's aggressive currency intervention led to a 1.9% weekly gain for the rupee, the largest such gain in four years.
Background
The rupee gained 1.9% in a single week following RBI intervention. Simultaneously, hedging costs reached a decade-high as three-month yields hit 6.54%.
Facts for Prelims
- FactThe rupee gained 1.9% in a single week following RBI intervention.
- FactThree-month yields reached a decade-high of 6.54%.
- FactMarket dislocation was attributed to restrictions on transactions exceeding $2 million.
Prelims practice question
With reference to the recent currency market trends, consider the following statements:
- Three-month yields reached a decade-high of 4.54%.
- Market dislocation was attributed to restrictions on transactions exceeding $5 million.
- The rupee recorded a 1.9% gain in a single week following RBI intervention.
Which of the statements given above is/are correct?
- (a)2 only
- (b)3 only
- (c)2 and 3 only
- (d)1, 2 and 3
Show answer
Answer: (b) 3 only — Statement 3 is correct. Statement 1 is incorrect: The note states three-month yields hit a decade-high of 6.54%. Statement 2 is incorrect: The note attributes market dislocation to restrictions on transactions exceeding $2 million.
For Mains
Q. Analyze the impact of active central bank currency interventions on exchange rate stability and the cost of hedging for Indian exporters.
Dimensions to cover in your answer
- Market dislocation: Impact of transaction limits on $2 million on liquidity and price discovery
- Hedging cost escalation: Correlation between high three-month yields and corporate risk management costs
Keywords: Currency Intervention · Exchange Rate Volatility · Hedging Costs · Market Dislocation · Monetary Policy
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This note is generated automatically from SatyaDheesh's news feed and mapped to the UPSC CSE syllabus. Check facts against the original report or PIB before using them in an answer.