Rupee: Changing Trends

The immediate causes of the rupee appreciation in April were the weakness in the dollar and large FII inflows due to the initial public offerings of public sector units. Depreciation followed in May but the changes occurred because the RBI abstained from its normal intervention, which could have easily prevented the plus minus 5 per cent variation in the rupee. Perhaps it was sending a signal to markets that they should learn to live with limited two-way volatility.