Rupee: Finding a new floor

When the political class begins to anxiously inquire about what is happening to the rupee, there is some trouble ahead. In the last few days I have encountered many MPs, cutting across party lines, wanting to know why the rupee is getting hammered so badly against the dollar. The rupee lost an unprecedented 17.5 per cent in value against the dollar this year, and some analysts suggest it could go down to Rs 55 in a few weeks! Common sense would suggest that if the US economy is in deep trouble with few signs of recovery in the near term, it is the dollar that should decline against other emerging market currencies. But it doesn’t quite work like that.

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