After gaining strength for nearly three consecutive years against the US dollar, the rupee seems to have reversed its direction. The domestic currency has already lost almost 5% in the last three months and has touched a 13-month low against the US dollar. More particularly, the month of October has seen the rupee consistently losing ground to the dollar. Rupee depreciated by over 3.5% in October 2005 and lost a good 67 paisa during the period from November 1-11, 2005.

Yet, this has not caused much concern for the players in the market, nor did the RBI react publicly to the falling rupee. In fact, analysts think that the rupee’s recent fall has turned out to be a blessing in disguise for the central bank since a declining rupee will encourage exports, which will, in turn, reduce the country’s trade deficit. Further, had the RBI intervened to check the fall in rupee against the dollar, it would have appreciated the local currency against the euro and the yen (rupee is already overvalued against these currencies). The Finance Minister P Chidambaram in a press conference said that rupee’s fall was orderly and very much acceptable. Rupee had depreciated only against the dollar while holding strong against other currencies like British pound, euro, and yen. This was because of the greenback’s increasing demand which had appreciated against all major currencies and the domestic currency was no exception. Hence, the rupee’s fall, in such a scenario, is not unusual.

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