Some of the crucial variables at this juncture, apart from price stability and money supply, which are always dominant, are, in my view, the revenue and expenditure position of the Government, the oil pool deficit, the buoyancy in industrial activity, the progress in infrastructure sector, and the developments in trade and capital flows. Besides, leads and lags operate, affecting the market.
Moreover, major players in the market influence exchange rate movements and thereby the perceptions about policy. Let me illustrate this point with reference to the oil pool deficit. The IOC has, in the recent past, increasingly resorted to foreign currency borrowing rather than domestic borrowing to finance the deficit, presumably in view of the lower cost and the perceived stability of the rupee.