GOVERNMENT OF INDIA
Ministry of Finance
UNSTARRED QUESTION NO 2386
TO BE ANSWERED ON 23.12.2008
Depreciation of Indian Rupee.
SHRI RAJEEV CHANDRASEKHAR
Will the Minister of FINANCE be pleased to state:-
(a) whether Government has taken note of the recent serious depreciation of Indian rupee vis-à-vis US dollar which has the effect of pushing up the prices of imported goods in Indian market; and
(b) if so, the extent of depreciation of Indian rupee during the last three months and the steps proposed by Government to restore the value of Indian rupee in relation to US dollar at a reasonable level?
MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PAWAN KUMAR BANSAL)
(a) & (b): The exchange rate of the rupee moved from Rs.39.97/US $ as on end-March 2008 to Rs.44.21/US $ on September 1, 2008 and further to a peak of Rs.50.52/ US $ on December 2, 2008. US dollar gaining strength against major world currencies, outflows on account of FII, increased recourse to hedging by importers, reduced capital inflows and widening trade deficit arising from elevated levels of global oil and commodity prices in the first half of the financial year are some of the factors that could be attributed for the depreciation of the rupee. The index of Real Effective Exchange Rate
(REER) of the rupee (6 currency trade based weights with 1993-94 as base year), which is a weighted average of nominal exchange rates adjusted for relative inflation differential between India and foreign countries (the major trading partners of India) is a better indicator of the value of the rupee. The REER fell from a level of 110.87 in March 2008 to 101.98 in October 2008 and further to 100.74 on November 21, 2008. The details of the depreciation of the rupee in the last three months are given in the Table below.
Table: Movements of the rupee/REER in the last three months
Rs per US dollar
Depreciation in Rs. Per dollar over previous month
REER 6 currency, 1993-94 base
Depreciation in REER over previous month
* as on November 2, 2008
The exchange rate policy in recent years has been guided by the broad principles of careful monitoring and management of exchange rates with flexibility, without a fixed target or a pre-announced target or a band, while allowing the underlying demand and supply conditions to determine the exchange rate movements over a period in an orderly way. With a view to alleviating the adverse impact of the turmoil in international financial markets (since mid-September 2008) on the domestic forex market, a number of measures have been taken, which inter alia include: