Rupee will continue to remain under pressure

While the first half of 2011 for Reserve Bank of India (RBI) was mainly a fight against inflation, the second half was dominated by worries of a depreciating rupee. To give you the exact numbers, the USD-INR exchange rate rose from the comforts of about 44 in August 2011 to a high of 54.3 around mid-December 2011. That was a whopping 23.4% decline for the rupee. The exchange rate has moderated a bit now to about 51.53. This has been mainly due to some measures initiated by the RBI and the finance ministry.
One measure was, of course, RBI's direct intervention in the market to curb the rupee decline. The RBI has also started a new swap line with the Bank of Japan which has helped prop up dollar liquidity to a certain extent. Moreover, the finance ministry announced certain small measures to attract dollars. One was allowing private foreign investors to invest directly in the Indian stock markets. In addition, interest rates on non-resident Indians (NRE) have also been freed. However, all these measures have their own limits and cannot drastically change the fundamentals of our currency which suffers due to a high current account deficit. The looming slowdown in growth will only make things more challenging. So it is quite likely that the rupee will continue to remain under pressure and may even see new lows in the coming times.