The Economic Survey pitched for a more aggressive stance towards stemming volatility in the exchange rate of the rupee to shore up investor confidence as any abnormal depreciation in the currency tends to have a negative impact. “The rupee has experienced high volatility in the last few years,” the Survey says. “A more aggressive stance to check rupee volatility is, therefore, necessary,” it says while noting that depreciation in its value has implications for corporate balance sheets and profitability in case of high exposure to external commercial borrowings (ECBs).

In the last six months of 2011, the rupee depreciated sharply from a peak of 43.94 to the U.S. greenback on July 27 last year to hit a low at 54.23 on December 15. As on date, the rupee ended the day's trading at 50.38/39 to the U.S. dollar. It, however, notes that while it is true that the rupee exchange rate “had depreciated abnormally but subsequent partial correction means that it is now at a more realistic level.”

Listing the steps that had been put in place to arrest the fall, the Survey says, the Reserve Bank had taken a slew of measures and eased some of the capital controls to increase dollar inflows.

“As a result of these measures, and increase in capital inflows, the depreciating trend in the rupee exchange rate reversed. The monthly average exchange rate of the rupee appreciated by 2.6 per cent from 52.68 per U.S. dollar in December 2011 to 51.34 per dollar in January, 2012.”

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