Irrational markets making money.

Four days back, "The Monetary Policy Committee (MPC) unanimously voted to raise the policy repo rate by 25 basis points (bps) to 5.50%, after a detailed assessment of evolving macroeconomic and financial conditions, developments and outlook." Expected Real GDP growth rate was increased from 6.7% to 7.1% for FY 2026-27, while consumer price index (CPI) inflation is expected to be 5.2% and core inflation to be 4.4%. ET. The day before the MPC meeting, "The rupee declined 0.15% to 96.43 per dollar" and the RBI is thought to have supported it. "The currency hit a record low of 96.96 in May." ET. From June to September the RBI raised $136.4 billion from overseas borrowing (DC), which ballooned the forward liability by $200 billion. "Will it be a case of too little too late?" as there has not been much change since its last meeting on 26 August. "Even at the newly-hiked rate of 5.50%, the real policy repo rate is negative, if one accepts the MPC projected rate of inflation during the third quarter (6%) and the fourth quarter (5.7%)," wrote Mythili Bhusnurmath. The Indian rupee has fallen to 96.70 to one dollar since then. xe.com. On 2 October, SBI Research called for immediate "protective guardrails" around the rupee and said, "the balance of risks has 'tilted decisively' towards a 25 bps rate hike." "The report said the global environment argues against waiting, pointing to rate increases by South Korea and Philippines in August and by the US, Japan, the euro area and New Zealand in September amid renewed inflation risks." BT. On 10 October, "SBI Research has called for stronger Reserve Bank of India (RBI) intervention to manage currency volatility," because of "a changing global financial environment, with a resurgent US dollar, uncertainty over the Federal Reserve's interest rate trajectory and rising international bond yields." BT. "In the week ended 4 September 2026, the country's forex reserves touched a record $785.71 billion,' but "by 2 October, reserves had declined to $734.6 billion, according to RBI data. The sharp fall suggests continued intervention by the RBI in the foreign exchange market." When the FCNR (B) scheme was announced in June, the rupee was trading at 95.74 to the dollar but despite huge inflows under the scheme the rupee touched 96.84 against the dollar on 7 October before closing at 96.77. One reason is that "In total, foreign portfolio investors (FPIs) have sold a massive Rs 2.85 trillion in Indian equity so far in 2026." BT. By selling dollars to support the rupee, the RBI is increasing FPI repatriation as they convert their proceeds. Effectively, India has borrowed dollars at up to 6.5% rate of interest (IDBI Bank) as a gift to FPIs to take more dollars home. "India's central banks governor Sanjay Malhotra said financial markets could be irrational in the short term and several measures suggested the rupee was undervalued." Reuters. In June 2025, the RBI cut its policy rate by a large 50 basis points, for a cumulative reduction of 100 bps in the four months since February  South Indian Bank. With inflation rising and the rupee under pressure, why didn't the RBI raise rates by at least 50 bps, instead of a cosmetic 25 bps, to show it is serious? "It's only in the long run they are able to find the right value (of the rupee)," said Malhotra. Indeed! "In the long run we are all dead," said the famous economist, John Maynard Keynes. Goodreads. Till then markets are making money. Because the RBI is giving them. No need to wait.