ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Exchange Rate and the Economy

AFTER a period of well over a year when the rupee held steady at 35.70-35.85 to the dollar, public attention has been drawn to the exchange rate by last week's minor turbulence which very briefly pushed the rupee down to 36.50, its lowest level for some year and a half. This period, though, has witnessed diverse developments having a direct bearing on the exchange rate: a notable rise in the country's foreign currency reserves, appreciation of the dollar in relation to many of the world's major currencies and a rise in the real effective exchange rate of the rupee even as export growth has gone into a tailspin. Indeed it was the admission of the appreciation of the rupee's real effective exchange rate by a deputy governor of the Reserve Bank which is believed to have sparked last week's excitement in the currency markets, together with the prime minister's typically easy going remark about an exchange rate band for the rupee being under the authorities' consideration which had to be officially contradicted by an obviously flustered Reserve Bank.

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