Seems that the Reserve Bank of India, RBI is in bit of bother. Foreign Institutional Investors, FIIs have poured over Rs. 1 trillion into our stock market and maybe poised to put in more. This is apparently due to the loose monetary policy in the US and Europe where interest rates are at historically low levels allowing cheap money to flood into emerging markets where returns are better. The Sensex is above 21000 and Indian investors are very happy. Problem is that the infusion of so much dollars is making the rupee stronger which, in turn, harms exports and impacts the profit margins of the IT sector when they bring money back to India. The RBI is caught between a rock and a very hard place. If they buy dollars from the market to push the rupee down they will inject more liquidity into the system pushing up inflation. To control inflation they will then have to increase interest rates which will increase company costs and may decrease consumer consumption. Increased interest rates may attract more dollars to take advantage of the arbitrage opportunities which will again put upward pressure on the rupee. The government does not want interest rates to increase because that will increase its borrowing costs and any slow down in growth rate will adversely affect tax collections which is desperately needed to pay millions of useless, thieving, unproductive civil servants whose salaries were unjustifiably increased by the Sixth Pay Commission as a bribe to win last year's general elections. Seems that no one has clue as to what to do. With world famous economist in charge what do we expect?