In the market, the simultaneous buying of rupees and selling of dollars can lead to rupee appreciation and negatively impact the value of RBI’s NFA
While on the asset side, RM is made up of net domestic assets (NDA) and net foreign assets (NFA), on the liability side, it is composed of Currency in Circulation (CIC) and Deposits made by banks.
ongoing dollar inflows adjusted for volatility increase its NFA
RM on the asset side is now higher, RBI adjusts the liability side by increasing CIC, thereby creating new money.
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