IMF's sound advice.

"US Treasury yields held near multiyear highs on Friday (yesterday) with markets seeing no let-up in tightening from the Federal Reserve, causing shares to slip and the dollar to stay strong, particularly against the embattled Japanese yen." Reuters. "The benchmark US 10-year yield edged up as high as 4.276%, its highest level since June 2008, having risen nearly 10 basis points overnight." "Global markets have been extremely volatile as investors worry that hefty rate hikes will push major economies into recessions before inflation is tamed, while the resulting strong dollar could wreak havoc in emerging markets." The International Monetary Fund (IMF) data shows "the US dollar, by virtue of being widely used in trade and financial transactions, remains first choice of reserve currency," but its share in global foreign exchange reserves has dropped "from about 72% in 2000 to about 60% in 2022", wrote Uma Gupta. Even so, "Nearly half of world trade is still happening using the dollar," and "Nearly 90% of India's foreign trade is invoiced in dollars." "India's inflation worries will compound as a stronger dollar makes India's imports more costlier." ET on 14 June. At the time one dollar was worth Rs 78.28. Today, one dollar buys Rs 82.54. xe.com. "While, as per bankers, even if India's trading partner's currency has dropped in tandem with the rupee, imports will still be more expensive because billing is still done in dollars, and most importers lack bargaining strength." "The foreign exchange reserves of Asia's third largest economy fell by $4.50 to $528.37 billion for the week ending Oct 14, according to data released by the Reserve Bank of India. The spot forex reserves have fallen from $607 billion in end-March and depleted by $114.08 billion from $642.453 billion seen on September 3 last year." ET. "On average, the estimated pass-through of a 10 percent dollar appreciation into inflation is 1 percent. Such pressures are especially acute in emerging markets." IMF. "Given the significant role of fundamental drivers, the appropriate response is to allow the exchange rate to adjust, while using monetary policy to keep inflation close to its target." Which means higher interest rates. "Specifically, foreign exchange intervention should not substitute for warranted adjustment to macroeconomic policies." Means, don't sell dollars. The foreign exchange reserves are now enough to cover 8 months of imports, wrote Niranjan Rajadhyaksha. "A six-months import cover is the bare minimum required. So, in effect the RBI now has a maximum of $120 billion to support the rupee. Second, India will also have a balance-of-payments deficit of around $120 billion this financial year." "However, a central bank with a formal inflation-targeting mandate should ideally use its interest rates only to manage domestic demand and not exchange rate." That is exactly what the IMF is advising. Do one and the other will follow. Same as black or white cats.