रुपया अजून मजबूत होण्याचे फायदे आहेत की तोटे ? सविस्तर माहितीसाठी वाचा -Business Standard मधील बातमी

Four years ago when the India’s external finances were going through a mini-crisis and the Rs /$ rate was close to 70 no one would have predicted that today it would be around 64. Even as recently as January this year, the Rs /$ rate averaged 68 for the month. Nor is this strengthening of the rupee limited to the rupee-dollar parity. The Reserve Bank of India’s 36-country, trade-weighted (2004-05 base)  Real Effective Exchange Rate (REER) index, which takes into account exchange rate movements with respect to 36 trading partners/competitors and adjusts for inflation differentials, also shows a pattern of strengthening from 103 in 2013-14 to 112 in 2015-16 and further to 118 in March 2017. What’s going on?

In some government quarters there is considerable satisfaction about this strengthening of the rupee in recent years and months. It is attributed to “strong fundamentals” of good growth, low inflation, fiscal consolidation and low current account deficits (CADs) in the balance of payments (well below 2 per cent of gross domestic product [GDP]) for four years in a row. While there may be some merit in this point of view, it should not distract policymakers from other pertinent factors and perspectives.

First, as noted, some of this rupee strengthening is quite recent, in the last three or four months. It appears to be due to a number of factors, including a reversal in the initial, Donald Trump election-related strengthening of the dollar, a recent downward correction in oil and other commodity prices and the return of foreign portfolio inflows into India after their withdrawal in the initial weeks following the November 2016 demonetisation. The point is short-run factors such as these may or may not persist in the medium-term. From a policy-perspective it is crucially important to take a medium-term view of the exchange rate policy based on a good understanding of past trends and factors (and their consequences) and reasonable judgements about possible future trajectories.

via Beware a strong rupee | Business Standard Column