Exchange Rate Policy Reforms: Recent Initiatives

Abstract

As the world economy gets increasingly integrated, the management of exchange rate assumes a critical role in the country's macroeconomic policy. Tarapore argues that monetary authorities are duty bound to maintain a desired exchange rate through appropriate market intervention. The main problem in exchange rate management in India has been the appreciation of real effective exchange rate. According to Tarapore, in the absence of transparency in exchange rate management, the transmission of signals from the central bank to the forex market are muted and counter-productive. A more transparent exchange rate policy is more likely to generate greater confidence among the market participants and thereby minimize the need for frequent market intervention.