The exchange rate: economics bites back
Since last August the Indian rupee has been volatile and weak. The rupee-dollar parity dropped from 44-46 last summer to a low of 54.2 in mid-December. Some regulatory measures and substantial market intervention by the Reserve Bank of India (RBI) in December and January (about $8 billion of dollar sales each month) restored the rate to around 50 by end January. After the presentation of the Union Budget in mid-March, the rupee has been again jittery and anaemic, dropping to an all-time low of 54.9 on May 18, raising serious concerns in both the media and Parliament. Senior government spokesmen have frequently blamed the unfolding Greco-European crisis as the principal cause for the rupee’s woes.