Not much to worry about currency, for now
As per the latest reported data (7 January 2022), RBI was holding a total of US$632.7bn in non INR assets. This includes US$569.3bn foreign currencies, US$39bn gold, US$19.1bn SDRs and US$5.2 reserve position in the IMF. Considering our emotional attachment to gold, I would like to categorize it as emergency reserve only. So effectively, RBI has US$569.3bn worth of foreign currency to meet the regular demand. Considering an expected trade deficit of US$200-220bn for FY23, we appear adequately covered for monetary tightening by global central bankers and consequent unwind of USD carry trade potentially leading to FPI outflows. Assuming, that the global central bank monetary tightening is able to reign the runaway inflation, and India inflation remains at midpoint of RBI target range, we may end up with 2-2.5% INR depreciation for the year, implying end FY23 exchange rate (INR/USD) of 75 to 75.5; of course, not a matter of much concern. Some recent news headlines have drawn atten...