Descriptive Prep: Brajesh Mohan

The Impossible Trinity, Revisited. A sharp opinion piece by Ananth Narayan (former wholetime member, Sebi) argues that RBI's large, sustained market interventions call for greater coherence in its overall policy framework — even though the central bank maintains it does not target any specific USD/INR level. Key Highlights: • Over the last 10 years, across spot and forward markets, RBI's net annual currency intervention has averaged about $60 billion, or 2% of GDP — with the RBI selling a significant $118 billion in FY25 to restrict the rise in USD/INR from 83.50 to 85.50 • Between April 2025 and February 2026, RBI sold another $37 billion even as USD/INR moved up to 91; following the outbreak of the Iran war, it sold a further $37 billion in March 2026, with USD/INR eventually ending the month around 93.50 • The author argues India's interest-rate policy extends beyond the MPC — RBI also intervenes heavily in bond markets and modulates banking liquidity to facilitate monetary-policy transmission, with its own bond holdings rising by ₹7.2 trillion during FY26, accounting for a substantial 40% of incremental government debt • RBI's large bond purchases and liquidity operations have kept rupee-denominated interest rates below levels that would otherwise be required to attract discretionary savings — the benchmark 10-year India-US spread averaged just 235 basis points in FY26, a multi-year low • The piece contends this has pushed discretionary savings away from debt and into domestic equities, contributing to pockets of overvaluation, while low interest-rate differentials also compressed forward premia — making it cheaper to hedge and speculate against the rupee, deterring foreign investment and incentivising outflows • For now, RBI has eased the underlying "trilemma" by attracting three-to-five-year foreign funds through its heavily subsidised FX-swap window — but this doesn't eliminate the structural tension, since funds raised through the swap window keep domestic interest rates below what would otherwise be needed • The author's proposed solution: rather than mechanical rules, RBI could adopt a broader framework — similar to inflation-targeting central banks like the ECB, RBA, BoE and BoJ — that explicitly considers the impact of large interventions on interest-rate differentials, capital flows, and exchange rates, alongside addressing structural issues like taxation of fixed-income returns and capital gains to attract more discretionary savings into deposits and debt markets. A compelling case for RBI to formalise how it thinks about the interconnectedness of interest rates, capital flows, and exchange rates — not by targeting the rupee, but by being more transparent about the trade-offs its interventions already create.

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The Reserve Bank of India (RBI) distances itself from 'Bank Deposit Ratings'. In a surprise move, it tells Credit Rating firms not to name 'RBI as the regulator' in their communiques on Bank Deposits. As per SEBI regulations, rating agencies have to mention the specific regulator of a rated instrument in press releases and rating action reports.

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India’s merchandise exports recorded strong growth in July 2026 despite West Asian disruptions. This reflects diversification of India’s trade geography and shipping routes. Key Data India’s merchandise exports stood at $44.2 billion, up 19.6% year-on-year. Merchandise imports stood at $76.2 billion, up 17.5%. Total exports stood at $80.14 billion, up 13.31%. Total imports stood at $95.16 billion, up 15.83%. The trade deficit widened to $15 billion, compared with $11.4 billion a year earlier.

India's 2026 population of 142.6 crores is dominated by its younger cohorts Gen Z leads at 26%, followed closely by Gen Alpha at 24% and Millennials at 23%, meaning nearly three-fourths of the country falls under 45. Boomers account for 16%, Baby Boomers 10%, while those above 80 years form just 1% of the population.

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The full version of this column can be read online - https://www.thehindubusinessline.com/opinion/data-centres-the-watts-and-the-water/article71335930.ece

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