Apart from the threats, the RBI's sops for exports do not add up to much. Lowering the interest rate for rupee export credit is only for incremental exports. Reducing the interest rate for dollar export credit is of little use since nobody uses the facility anyway because of its relatively high cost. And if the RBI's intention was to signal that itwas unconcerned with the level of the rupee, drawing attention to the REER was hardly the way to drive home that point.

Perhaps the way to instill confidence in the rupee is, paradoxically, to let the currency find its own level. If the RBI were to signal that it would countenance a drastic devaluation of the rupee, that would result in the rupee falling steeply initially, but if the RBI is able to keep speculation under control, there is every possibility that the low rupee would restrain FIIs from selling. As the finance secretary has pointed out, a depreciated rupee will also improve government finances. The only negative would be the impact on prices, but that could well be nullified by reducing some of the import duties imposed in the budget.