‘Impossible Trinity’ Pushing India’s RBI Toward Stronger Rupee
- Currency rebounding from record low on robust capital inflows
- RBI also manages government borrowings and financial stability
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One of the toughest challenges central bankers face is how to navigate the “Impossible Trinity” -- maintaining monetary policy independence while allowing a steady flow of foreign capital and keeping a stable currency.
Also known as the “Trilemma,” it’s the bane of emerging markets from Argentina to Turkey. Cut interest rates too far and risk scaring off foreign capital, sending the currency tumbling. Raise borrowing costs too much to fight inflation and funds rush in, sending the currency higher and strangling exports.