Beware a strong rupee

Long periods of a 'strong' currency has not been good for growth and development of nations

Four years ago when the India’s external finances were going through a mini-crisis and the Rs /$ rate was close to 70 no one would have predicted that today it would be around 64. Even as recently as January this year, the Rs /$ rate averaged 68 for the month. Nor is this strengthening of the rupee limited to the rupee-dollar parity. The Reserve Bank of India’s 36-country, trade-weighted (2004-05 base)  Real Effective Exchange Rate (REER) index, which takes into account exchange rate movements with respect to 36 trading partners/competitors and adjusts for inflation differentials, also shows a pattern of strengthening from