«

»

Dec
01

The Depreciating Rupee

The newspapers are full of reports of the rapid depreciation of the Indian Rupee against the US Dollar in recent weeks. Government and RBI officials have also been saying that it is difficult for RBI to intervene in the market to shore up the value of the Rupee. Let’s look at some of the issues involved.

In economic theory, an economy which is facing a higher level of inflation should have a depreciating currency. This is on account of the well known theories of purchasing power parity (PPP) and interest rate parity (IRP). India for some time has been experiencing around 9/10% annual inflation rate and the RBI has been increasing domestic interest rates. So from a narrow economic perspective a depreciating rupee is welcome and should help exporters remain competitive.

The RBI is also worried about the current account deficit (CAD) crossing 3% of GDP. A depreciating rupee will hopefully increase exports, reduce imports and encourage more invisibles, especially a rise in remittance inflow from NRIs.

Various reasons are being extended to justify this large depreciation of the rupee. This includes large scale withdrawal by FIIs. Foreign exchange reserves data reveals that the forex reserves have increased from about USD 305 billion in end-March 2011 to about USD 318 billion in October. So even though reserves have not substantially increased, they have not fallen either.

What has been the quantum of rupee depreciation? Since April 2011, the Rupee has depreciated over 16% against the US dollar, over 13% against the British Pound, over 10% against the Euro and over 27% against the Yen. This means that rupee has been depreciating against all other major currencies, not only the dollar.

The RBI calculates a 6-currency index to show the movement of the rupee in comparison with other major currencies. According to RBI data, during the financial year 2010-11, the real effective exchange rate of the rupee showed a substantial upward increase of 13%, while between end-March 2011 and mid-October 2011, the rupee has shown a real depreciation of 6.3%. So, RBI could justify this deprecation by saying that the real appreciation of the rupee during 2010-11 needed to be reversed.

However, a depreciating rupee is contributing to inflation in a substantial way. The share of foreign trade in goods is estimated at over 30% of GDP. So a large deprecation of the rupee will increase input costs substantially, especially in the case of oil imports. The question that arises is the appropriateness of a large devaluation of the rupee at the present juncture when the economy is facing a high inflation rate, the fiscal policy is deteriorating, and monetary tightening appears to be ineffective in controlling inflation.

The view that RBI cannot effectively intervene in the forex market is surprising. India did not embrace full capital account convertibility only because experts felt that the role of RBI in forex market intervention needed to be continued. Forex market intervention along with open market operations enables RBI to manage both foreign exchange rates as well as liquidity in the market effectively.

Given the above, RBI would be well advised at present to intervene in the forex market to try and stem the rapid fall in the rupee, and thus mitigate the effect of rising input costs. Once inflation comes under control, the rupee can be allowed to continue its downward trajectory if RBI is of the opinion that there is real appreciation of the rupee.

139 comments

No ping yet

  1. Hosting says:

    Wow! This could be one particular of the most helpful blogs We ave ever arrive across on this subject. Actually Excellent. I am also an expert in this topic so I can understand your effort.

  2. Investment tips says:

    Say, you got a nice blog.Thanks Again. Fantastic.

  3. Business NEWS Magazine says:

    Pretty! This has been an extremely wonderful post. Many thanks for providing this information.

  4. amateur pussy says:

    Magnificent web site. A lot of helpful information here. I am sending it to a few friends ans also sharing in delicious. And obviously, thank you for your sweat!

  5. locação de terno says:

    This is one awesome article. Really Great.

  6. women says:

    Pretty! This was an extremely wonderful article. Thank you for providing this info.

  7. visit website says:

    Major thankies for the post.Really looking forward to read more. Cool.

  8. bestoutdoorpicks.com says:

    Very careful design and outstanding articles, same miniature moreover we need.

  9. port renfrew hotel says:

    Your style is so unique in comparison to other people I have read stuff from. Thank you for posting when you have the opportunity, Guess I will just book mark this web site.

  10. Chara says:

    Utterly indited articles , regards for information.

  11. Elena Matei says:

    pretty beneficial stuff, overall I think this is worthy of a bookmark, thanks

  12. Online says:

    Thanks again for the blog.Really looking forward to read more. Awesome.

  13. free apk full version download for windows 7 says:

    We stumbled over here from a different web page and thought I might as well check things out. I like what I see so i am just following you. Look forward to checking out your web page repeatedly.

  14. free apk for android download full says:

    Looking forward to reading more. Great post. Much obliged.

  15. apk full download for pc windows 7 says:

    Im obliged for the blog article.Really thank you! Great.

  16. Paid IPTV says:

    Thanks for sharing, this is a fantastic article.Much thanks again. Keep writing.

  17. sim so dep says:

    I think this iis amoing thee most importnt info for me.

  18. sua hat huu co says:

    Professor Baiks dbproplan celine bags outlet

  19. giay nam cong so says:

    Wow, marvelous blog layout! How long have you been blogging for? you make blogging look easy. The overall look of your web site is excellent, let alone the content!

  20. credits online says:

    Really appreciate you sharing this blog.Really looking forward to read more. Want more.

  21. free games apps download for pc says:

    Woah! I am really enjoying the template/theme of this blog. It as simple, yet effective. A lot of times it as tough to get that perfect balance between usability and visual appearance.

  22. pc app free download for windows 7 latest says:

    information with us. Please keep us up to date like this.

  23. this website says:

    I will right away grasp your rss as I can not find your email subscription hyperlink or e-newsletter service. Do you have any? Please allow me recognize so that I may subscribe. Thanks.

  24. to learn more says:

    Wow, incredible blog layout! How long have you been blogging for? you make blogging look easy. The overall look of your website is excellent, as well as the content!

  25. click here says:

    That is a good tip particularly to those fresh to the blogosphere. Short but very accurate information Thanks for sharing this one. A must read post!

  26. play stripcasino online says:

    It cаА аЂаn bаА аЂа• seeen and ju?ged only by watching the

  27. faris arata says:

    You got a very wonderful website, Sword lily I detected it through yahoo.

  28. Chinese Martial Arts says:

    Really enjoyed this blog.Thanks Again. Great.

  29. Singapore Tattoo says:

    I think, that you are not right. I can defend the position. Write to me in PM.

  30. more info says:

    Yay google is my king aided me to find this great web site !.

  31. keyword planner says:

    This awesome blog is without a doubt educating as well as informative. I have picked helluva helpful stuff out of it. I ad love to visit it again and again. Thanks a bunch!

  32. farfetch promo code says:

    Very good post. I will be going through many of these issues as well..

  33. fitness blog nyc says:

    You made some decent points there. I did a search on the topic and found most guys will consent with your website.

  34. pre ipo says:

    Say, you got a nice article post.Much thanks again. Really Great.

  35. securities investing says:

    I was more than happy to uncover this website. I want to to thank you for your time due to this wonderful

  36. https://purtiershop.com/products/purtier-placenta says:

    It as actually a great and helpful piece of info. I am glad that you shared this useful info with us. Please keep us informed like this. Thanks for sharing.

  37. https://www.holysmoke.org/scam/dentzz/ says:

    Wow, amazing blog layout! How long have you been blogging for? you make blogging look easy. The overall look of your site is great, let alone the content!

  38. visit website says:

    Muchos Gracias for your blog post. Keep writing.

  39. staff id cards uk says:

    Very informative blog.Thanks Again. Awesome.

  40. Chong tham says:

    I value the post.Thanks Again. Really Great.

  41. free games download for windows 7 says:

    Thankyou for this marvelous post, I am glad I detected this website on yahoo.

  42. to learn more says:

    I understand this is off topic nevertheless I just had

  43. for more info says:

    This particular blog is definitely cool as well as amusing. I have discovered many handy tips out of this amazing blog. I ad love to visit it over and over again. Cheers!

  44. youtube to mp3 converter says:

    Im obliged for the blog post.Thanks Again. Awesome.

  45. for more information says:

    This is one awesome article post.Thanks Again. Really Great.

  46. PayPal stealth account says:

    your blog? Its very well written; I love what youve got

  47. Music download blog says:

    Very fantastic information can be found on site.

  48. Landfill says:

    Way cool! Some very valid points! I appreciate you penning this article and also the rest of the site is extremely good.

  49. Blocked Drain Bexley says:

    It’а†s really a great and helpful piece of information. I’а†m glad that you just shared this helpful information with us. Please stay us up to date like this. Thanks for sharing.

  50. roupas em atacado says:

    It is really a nice and useful piece of information. I am glad that you shared this helpful info with us. Please keep us up to date like this. Thanks for sharing.

  51. strip club barcelona says:

    Im obliged for the blog article.Thanks Again. Really Great.

  52. strip bars barcelona says:

    I truly appreciate this blog post.Thanks Again. Keep writing.

  53. ebay promo code says:

    Your style is so unique in comparison to other folks I ave read stuff from. I appreciate you for posting when you ave got the opportunity, Guess I will just bookmark this blog.

  54. movie trailers says:

    Very informative article.Really looking forward to read more. Fantastic.

  55. minecraft account generator says:

    Stunning story there. What occurred after? Take care!

  56. truck ins says:

    phase I take care of such information a lot. I used to be seeking this certain info for a long time.

  57. commercial truck physical damage insurance says:

    wow, awesome article post.Really looking forward to read more. Awesome.

  58. klm coupon code says:

    Looking forward to reading more. Great blog.Really thank you!

  59. visit website says:

    Normally I really do not study post on blogs, but I must say until this write-up really forced me to try and do thus! Your creating style continues to be amazed us. Thanks, very wonderful post.

  60. san pham noel says:

    You made some nice points there. I did a search on the subject matter and found most people will agree with your site.

  61. Nwokolo says:

    New car loans is probably the common loans in the financial

  62. check my site says:

    You really make it seem so easy with your presentation but

  63. click here says:

    pretty valuable material, overall I think this is well worth a bookmark, thanks

  64. https://www.libertypartybus.com/ says:

    you ave gotten a great weblog right here! would you like to make some invite posts on my blog?

  65. click here says:

    We think you should read this I am still learning from you, as I am trying to reach my goals. I definitely love reading all that is posted on your blog.Keep the tips coming. I enjoyed it!

  66. sex pill says:

    I think other site proprietors should take this web site as an model, very clean and excellent user genial style and design, as well as the content. You are an expert in this topic!

  67. Jackelyn says:

    Of course, what a magnificent website and instructive posts, I surely will bookmark your website.Have an awsome day!

  68. Vanda says:

    Whoa! This blog Whoa! This blog looks just like my old one! It as on a totally different subject but it has pretty much the same layout and design. Outstanding choice of colors!

  69. Kati says:

    Very good article. I will be dealing with a few of these issues as well..

  70. Liana says:

    you may have an important blog here! would you prefer to make some invite posts on my blog?

  71. Asuquo says:

    Wow, great article.Much thanks again. Great.

  72. PERM says:

    slot machines for sale view of Three Gorges | Wonder Travel Blog

  73. Power Efficiency Guide Reviews says:

    Well I found this on Digg, and I like it so I dugg it!

  74. The Lost Ways says:

    Simply wanna remark that you have a very decent web site , I enjoy the design and style it actually stands out.

  75. bodrum escort says:

    Wow! This can be one particular of the most useful blogs We ave ever arrive across on this subject. Basically Magnificent. I am also an expert in this topic therefore I can understand your hard work.

  76. more info says:

    Wow! This could be one particular of the most useful blogs We have ever arrive across on this subject. Actually Wonderful. I am also an expert in this topic therefore I can understand your hard work.

  77. best luggage sets says:

    Looking around I like to surf around the internet, regularly I will go to Digg and read and check stuff out

  78. Diseño web Vigo says:

    What if I told you that knowledge is power and the only thing standing inside your strategy is reading the remaining of this article Not fake

  79. Houston says:

    Your location is valueble for me. Thanks! cheap jordans

  80. Kallos says:

    Wow! This can be one particular of the most helpful blogs We ave ever arrive across on this subject. Basically Wonderful. I am also an expert in this topic therefore I can understand your effort.

  81. switch cisco 2960 says:

    Looking forward to reading more. Great article.Thanks Again. Keep writing.

  82. woking cab says:

    Very good blog article.Really thank you! Keep writing.

  83. viralperson says:

    Nice blog here! Also your site loads up fast! What host are you using? Can I get your affiliate link to your host? I wish my web site loaded up as quickly as yours lol

  84. mobile game apk says:

    Looking around I like to surf around the internet, regularly I will go to Stumble Upon and follow thru

  85. for more details says:

    I think this is a real great article post.Really looking forward to read more. Will read on

  86. for more info says:

    That is a good tip especially to those new to the blogosphere. Simple but very accurate information Thank you for sharing this one. A must read article!

  87. Buy Instagram views says:

    this webpage on regular basis to obtain updated from

  88. this website says:

    You made some decent points there. I did a search on the topic and found most persons will approve with your site.

  89. trap an hoi ha noi says:

    Some really quality posts on this website , bookmarked.

  90. ยาเพิ่มขนาด says:

    Im thankful for the article post.Really thank you! Want more.

  91. มาส์กหน้า says:

    pretty valuable stuff, overall I think this is really worth a bookmark, thanks

  92. Mca reviews says:

    Very interesting points you have noted , thanks for putting up.

  93. generic levitra says:

    Im grateful for the article.Much thanks again. Great.

  94. to learn more says:

    There is apparently a bunch to realize about this. I assume you made certain nice points in features also.

  95. for more information says:

    This web site certainly has all the info I needed about this subject and didn at know who to ask.

  96. teen pussy says:

    Wow, great post.Really looking forward to read more. Want more.

  97. Jordan 11 win like 82 release date says:

    logiciel gestion finance logiciel blackberry desktop software

  98. click here says:

    Thank you for sharing this good piece. Very inspiring! (as always, btw)

  99. Manifestation Magic Alexander Wilson says:

    Major thanks for the blog post.Really thank you! Really Great.

  100. Accounting ebooks says:

    Way cool! Some extremely valid points! I appreciate you penning this write-up and also the rest of the website is also very good.

  101. motor club of america bbb says:

    There is apparently a bunch to identify about this. I believe you made various good points in features also.

  102. obmenjat' kivi na bitkoin says:

    The very best and clear News and why it means a great deal.

  103. Link alternatif W88 says:

    I truly enjoy reading your blog and I look forward to your new updates.

  104. marketing says:

    This rather good phrase is necessary just by the way

  105. home says:

    This is a beautiful picture with very good lighting

  106. como saber el tiempo de uso de un celular says:

    Im no expert, but I believe you just crafted the best point. You obviously know what youre talking about, and I can truly get behind that. Thanks for being so upfront and so honest.

  107. carpet cleaning machines says:

    Oh my goodness! an amazing article. Thank you!

  108. cialis from canada says:

    Well I really liked reading it. This information provided by you is very constructive for accurate planning.

  109. site says:

    Really enjoyed this blog article. Great.

  110. sbobet says:

    There is evidently a bundle to know about this. I consider you made some good points in features also.

  111. visit this website says:

    sharing. my web page english bulldog puppies

  112. buy lol account says:

    You need to be a part of a contest for one of the best sites on the net. I am going to highly recommend this website!

  113. to learn more says:

    It’а†s actually a nice and useful piece of info. I’а†m glad that you simply shared this helpful info with us. Please keep us informed like this. Thanks for sharing.

  114. this website says:

    wonderful write-up It as possible you have stated a number of excellent elements, thanks for the post.

  115. https://www.toprydecarpetcleaning.com.au/ says:

    Wow, awesome blog layout! How long have you been blogging for? you make blogging look easy. The overall look of your site is great, let alone the content!

  116. Click to read says:

    Just got a Blogger account, it works good, but how do I find different users blogs I like with search. I remember there is a way, but I am not seeing it now. Thanks for your help..

  117. may dem tien oudis says:

    I really liked your blog.Really looking forward to read more. Much obliged.

  118. giay da banh san co nhan tao says:

    Really informative post.Really looking forward to read more. Want more. here

  119. Jordan 11 win like 82 foot locker says:

    You have made some really good points there. I looked on the net for more information about the issue and found most people will go along with your views on this site.

  120. ong luon day dien says:

    Please let me know where you got your design. Thanks a

  121. no deposit free spins says:

    Outstanding post, you have pointed out some great points, I too conceive this s a very great website.

  122. Autocross says:

    we came across a cool web site which you could love. Take a appear when you want

  123. My Face Gifts Review says:

    Thanks for sharing, this is a fantastic article.Thanks Again. Cool.

  124. IELTS course in Karachi says:

    later than having my breakfast coming again to

  125. Power Efficiency Guide Book says:

    Major thanks for the article post.Really looking forward to read more. Great.

  126. cheapest essay says:

    Usually I do not comment in your weblog. I am additional in the silent sort but I wonder, is this wordpress since I am thinking of switching my own blog from blogspot to wordpress.

  127. Marinewaze says:

    You have noted very interesting points! ps nice site.

  128. Tacoma eviction attorney says:

    Major thanks for the blog.Really thank you! Want more.

  129. painting for kids says:

    Louis Vuitton Artsy Bag ??????30????????????????5??????????????? | ????????

  130. http://kingpoker99.site/news.php?id=2399 says:

    in the daylight, as i enjoy to find out more and more.

  131. Website Design San Diego says:

    Wow! Thank you! I always wanted to write on my website something like that. Can I include a portion of your post to my site?

  132. Kapil Matka says:

    Nice post. I learn something new and challenging on blogs I

  133. investors says:

    Spot on with this write-up, I really think this website wants way more consideration. I all most likely be once more to learn rather more, thanks for that info.

  134. tallahassee gutter installation says:

    There is noticeably a bundle to know about this. I feel you made some good points in features also.

  135. Giay cao got says:

    You made some nice points there. I did a search on the issue and found most guys will agree with your site.

  136. tractors says:

    Would you be involved in exchanging hyperlinks?

  137. Escort in Tel Aviv says:

    Major thankies for the blog.Really looking forward to read more. Great.

  138. ยาเพิ่มขนาดน้องชาย says:

    Salute! Thank you very much for this marvelous website. It was fantastic joy to read.

  139. chocopie says:

    xdGiKF Really appreciate you sharing this blog post. Fantastic.

Comments have been disabled.