In fact, as our Governor at the Reserve Bank of India, Dr. C. Rangarajan, mentioned in his address at the Annual Presentation Ceremony of the Engineering Export Promotion Council earlier this month, “containment of domestic price increase has the same beneficial effect as the depreciation of the nominal exchange rate.
If the nominal exchange rate is stabilised at a certain level by letting the foreign exchange assets of the central bank increase, it may have an adverse effect on the exporters through price increases arising from more than the desired increase in money supply. There can therefore, be no rigid BIS Review 76/1997  -8-  formula governing exchange rate determination.