RBI faces dilemma from US policy spillovers – BIS paper
Authors highlight evidence of “contractionary devaluation” when US monetary policy tightens
Monetary policy-makers in India face a dilemma in responding to the impact of spillovers from US monetary policy, a working paper published by the Bank for International Settlements finds.
Shesadri Banerjee and Madhusudan Mohanty study micro-level data on the “financial channel” of the exchange rate. Non-financial firms in India increasingly borrow in US dollars. This can mean that a depreciation of the rupee, triggered by a tightening of policy in the US, is contractionary for India.
Banerjee
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