| Date: |
05-06-2010 |
| Subject: |
Future’s rupees |
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In the last one month the rupee depreciated from 44.3 to 47 to a dollar. Every time an administered rate mechanism is dismantled, there is a transition period where firms have to learn how to deal with price fluctuations. As India witnesses two-way movements of the exchange rate, and higher volatility of the rupee-dollar rate, firms will adapt themselves and become more resilient. The RBI needs the nerve to not flinch in this period, of learning how to live with a genuinely market-determined exchange rate.
On paper, India’s exchange rate regime has not changed since 1994. It has been a “managed float” with the RBI announcing its goal to be to “contain volatility of the exchange rate”. No announcements are made about what these broad statements mean in practice. Sometimes this has translated into periods of preventing large movements in the rupee-dollar rate. In other periods, it has been interpreted as attempting to prevent rupee appreciation.
Source :- indianexpress.com/news
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