If countries feeling the effects of inflation think they are going to be able to use exchange rate currency as a tool to fight it off, they are wrong. According to Reserve Bank governor Y.V. Reddy, “If the exchange rate is to be market-determined, you cannot use it as an instrument for some policy or the other.” His comments were made at a seminar in Singapore where he was responding to a question regarding the currency use.

Reddy believes that the inflation rates being reported may actually be higher due to the way they are being read because of underlying inflation pressures. He believes that oil subsidies may be depressing the actual figures. “The current high level of inflation is totally unacceptable, especially in terms of impact on inflationary expectations,” he said. Currently the benchmark ten year bond is yielding two basis points higher as traders watch measures to tighten to help calm price pressures, a good side effect overall.