The Indian Rupee-US Dollar Exchange Rate: The Economic Impact of a Strengthening Currency
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ICMR HOME | Case Studies Collection
Case Details:
Case Code : ECON025
Case Length : 21 Pages
Period : 2007
Pub. Date : 2008
Teaching Note :Not Available
Organization : --
Industry : -
Countries : India
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Introduction Contd...
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Although India had been witnessing strong dollar inflows for
some time, the rupee had not appreciated as steeply as it did between September
2006 and July 2007 mainly because on earlier occasions, strong dollar inflows
into India usually saw the Reserve Bank of India (RBI)9,
India's central bank, intervene in the foreign exchange market and purchase
excess dollars so as to minimize volatility in the value of the rupee.
This time around, the RBI chose not to intervene, in order to keep domestic
inflation, which had been hovering around 6 percent in early 2007, in check.
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While the RBI and the finance ministry were able to tame the
inflation rate (inflation fell to 3.52% in August, 2007), the rupee's
appreciation affected Indian exporters as Indian goods became more expensive
for foreign buyers.
Information technology (IT) and textiles industries were particularly
hard-hit, as they were the most dependent on the US.
Leather, sugar, and plantation crops were some of the other sectors that
were starting to lose competitiveness. The Indian Micro, Small and Medium
Enterprises (MSMEs) were also affected. It was feared that falling export
competitiveness would cause substantial job losses...
Excerpts
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