Rupee cannot be directly used in settling transactions with other countries and international currencies like US dollar have to be used. To ensure smooth international transactions, it is necessary to maintain the external stability of the Rupee. Incidentally, confidence in Rupee outside our country also depends very much upon domestic price stability.
While there are explanations for why interest rates may remain low for a considerable period of time, there is minimal compensation for the uncertainty as to whether or not this will actually occur. At the same time, equity prices embody a view of the future that robust growth can continue without generating a material increase in inflation.