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SBI Research in its latest report has said the Reserve Bank of India (RBI) should let the rupee rally against the dollar to contain imported inflation coming in mainly from crude prices and help push exports, as the current account risks from rising oil price can be contained at 1.4 per cent of GDP. Rallying crude and the resultant fear of the current account deficit have seen the rupee going down from 73.09 on September 1 to a low of 75.52 to a dollar on October 12. But it has again started appreciating and is presently at around 75, visible from forex market turnover -USD 2.2 billion of excess dollar supply in August - clearly showing the appreciating bias on the rupee.

Further, it stated the Reserve Bank has been continuously making forex purchases, and in FY21, it bought Rs 5.1 lakh crore worth of forex and the forex reserves swelled by USD 103.72 billion. Despite the second wave, the rupee gained strength and even went below 73 to a dollar. It noted ‘taking everything into account -- robust FDI inflows amid some volatility in FPI inflows of late -- our CAD projections stand at 1.4 per cent of GDP for the full year, which is comfortable, and if there is no extremely devastating third wave, the rupee is going to handle any taper news with relative calm.’

It added considering higher domestic inflation, as supply disruptions mount, it will not do any harm for the RBI to lean with the wind and let the rupee appreciate, as it can lead to reduced imported inflation when metal and oil prices are rising, and clearing the liquidity overhang to some extent.