Dare to cut.

"The rupee breached the 85 level for the first time on 19 Dec as the dollar gained ground across most currencies in the wake of the US Federal Reserve indicating that there would be fewer rate cuts in future than expected." TOI. Recently, "Two senior ministers of the Narendra Modi government," "Union Finance Minister Nirmala Sitharaman and Union Commerce Minister Piyush Goyal have flagged high interest rates as a dampener for growth. and want the RBI to change its tough stance on using high rates to tackle inflation." India Today. On 6 December, the Monetary Policy Committee of the Reserve Bank of India (RBI) held its policy rate at 6.5% for the eleventh time. "The RBI has maintained the repo rate at 6.5% since February 2023." BS. On 18 December, the US Federal Reserve cut its Funds rate by 25 basis points for the third time this year to 4.25%-4.5% and projected two more cuts in 2025. NBC. One would have expected that the higher yields on the rupee would lead to increased investment in Indian bonds by foreign investors looking for higher returns. In fact, yields on the benchmark 10-year bonds hardened from 6.751 on 18 December to 6.90 on 27 December. Investing.com. "The rupee plunged to a record low yesterday, closing at 85.53 against the dollar from its previous close of 85.26," having "touched an intraday low of 85.80 - its sharpest fall in nearly two years." TOI. "The fall in the rupee was driven by panic dollar buying from importers, increased month-end demand and maturing non-deliverable forwards." "India's foreign exchange reserves dipped by $8.4 to $644.39 billion as of December 20." ET. Reserves must have fallen further this week as the RBI sells dollars to prevent a collapse in the value of the rupee. The RBI's November bulletin shows that the real effective exchange rate (REER) of the rupee was overvalued because other currencies fell more against the dollar. REER rose from 104.4 to 105.3 against a basket of six currencies including those of the US, China, Eurozone, Hong Kong, the UK and Japan. TOI. Foreign investors (FIIs) net sold Rs 13.23 billion worth of shares on 27 December (Moneycontrol) and got relatively more dollars, which means the RBI effectively transferred dollars from its reserves to FIIs. When RBI sells dollars it creates a shortage of rupees in banks, pushing up lending rates. "As of 23 December, the liquidity deficit stood at Rs 2.43 trillion." ET. An overvalued REER against China means more imports from China. The merchandise trade deficit with China has risen 13% to $57.83 billion from April-October. Mint. A weakening rupee means higher cost of imports and higher inflation. At 6% inflation rate the value of Rs 100,000 will almost halve to Rs 55,840 after 10 years, will be nearly one-third at Rs 31,180 after 20 years and less than one-fifth at Rs 17,410 after 30 years. FE. If RBI cuts interest rate the rupee could fall further. Inflation will jump. And the value of the rupee will fall further. Will ministers take responsibility? Will Dear Leader?