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June 28th 2007

Indian Rupee Surges Unexpectedly

The Indian Rupee has been tightly controlled by the country’s Central Bank, which has not allowed the currency to fluctuate much.  A few months ago, however, the Rupee suddenly and rapidly began appreciating against all of the world’s major currencies.  Now, the Rupee stands at a 9-year high against the USD.  It turns out that India’s Central Bank deliberately allowed the Rupee to appreciate in order to combat inflation.  The reasoning is that a more expensive currency would make imports less expensive and exports more expensive from the standpoint of foreigners, which would hopefully lead Indian exporters to release more supply domestically, thus lowering prices.  While it remains to be seen whether the strategy was successful in reducing inflation, you can be sure India’s Central Bank will continue to aggressively pursue a policy of Rupee appreciation, until it inflation has decisively been held in check. 

Read More: Rising rupee: The causes and consequences

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Posted by Adam Kritzer | in Emerging Currencies, Politics & Policy | No Comments »

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