Sir,
could you please explain , why would money supply fall in the fixed peg regime when RBI announces ₹/$ = 60+/- 1% and dollar is continuously hitting 60.6 and wanting to go up , RBI will sell it’s dollar reserve . i.e ,sell dollar and buy rupees? How?
So as per your doubt if it is hitting the upper circuit that means rupees is depriciating against dollar so RBI want to maintain that level of 60 ±1% so it will not allow rupees to depriciate so it will sell dollar so dallar will fall and it will buy rupees so demand goes up so rupees will appreciate and it will be under the circuit once again
So, how is it going to affect money supply? Like we are selling US treasury to US and getting back our currency , so now we have more rupees , so money supply will rise or fall ?
RBI will buy indian rupee i.e rupees will be available less in the market because RBI buys rupees therefore if there is less rupees in the market so money supply of rupees will fall brother i hope you got it and the money supply of dollar will rise Just give yourself a little bit time you will get it correct
So , as money supply falls and interest rates in India will rise. Correct?
Yes in this condition int of rupee has risen because of demand for Indian rupees