During periods of rupee depreciation, however, the relationship could turn uni-directional from the NDF to the on-shore market, potentially resulting in greater spillovers of international shocks.
This has raised the need for much greater policy coordination between countries than has been the case so far, particularly as currencies of many EMEs including India are officially not allowed to be traded overseas under the current capital account management framework. viii. Another challenge has arisen in the context of central bank communication, especially during volatile times.