A macho rupee is a must.

For the first time in 4 years, that is during Modi's reign as prime minister, the Reserve Bank, RBI, increased interest rate by 25 basis points. India's GDP grew at 7.7% in the quarter ending in March, and the Monetary Policy Committee, MPC, predicted a growth rate of 7.5-7.6% in the first half of the present financial year and 7.3-7.4% in the second half, which would make India the fastest growing major economy in the world. The cost of our basket of crude oil has increased from $66 per barrel in April to $74 per barrel which will feed into inflation, as shown by the rise in inflation expectations. Most economists predicted that the RBI would keep rate at 6% while indicating a tightening bias, signalling a rise later in the year. But, the MPC unanimously voted for the rise because of a rise in both headline and core inflation. Volatile oil prices and Minimum Support Prices 50% higher than cost of production for farmers, announced by Modi in April, could raise prices of food. Core inflation, which excludes cost of food and fuel, rose by 5.92%, while headline inflation rose by 4.58% in April. This maybe a one off and not a cycle of hikes because the RBI kept its bias at neutral which means that it will raise rates only if indicated, wrote T Bandopadhyay. Fuel prices drive inflation only in Thailand and Taiwan, inflation is solely determined by the output gap in Japan, Singapore and Hong Kong, while food prices have an effect in China and Korea. India, Philippines and Indonesia are vulnerable to the exchange rate of their currencies against the dollar, wrote A Mukherjee. Central banks of both Philippines and Indonesia have raised interest rates already and are ready to raise them again, so India is behind the curve. India is in a better position than in 2013 when the rupee crashed to 69 against the dollar. Our twin deficits, fiscal and current account, are high, but below 2013 levels, retail inflation level is low, and we have much larger foreign exchange reserves. Trouble is that "India's underlying external imbalances have markedly deteriorated in recent years," wrote SZ Chinoy. "If one excludes net-oil and gold imports, India runs a sizeable current account surplus. But that current account surplus has seen a sustained deterioration over the last three years, declining from 4.6% of GDP in the second half of 2014 to 2.2% of GDP in the second half of 2017." Why? "Between the start of 2014 and the end of 2017, India's broad trade-weighted real exchange rate appreciated almost 20%." The rupee was very strong. This hit our exports. India's exports as a percentage of GDP is the lowest since 2003-04, wrote M Chakravarty. If the rupee falls our exports will benefit, wrote Agarwal and Chopra. Just before an election? The opposition will crow.