The Indian rupee continues its climb against US dollar touching a new nine-year high of 40.22 in early trade today. However, the rupee value remains the same as par other currencies. A weak dollar and huge dollar inflows into the market - $5.8 million in July alone - are responsible behind the rupee’s surge. In fact, over the past few months the rupee has strengthened as much as by 10% against the dollar and may soon breach the crucial 40 mark which has so far been held in check by the central bank’s intervention - the Reserve Bank of India has been buying dollars to check further rise of rupee. The RBI has bought $23.4 billion between January and May. State banks are also buying dollars on the central bank’s behalf.
The rupee stength is not an indicator of the national economy though. It is not that Indian economy has improved by 10% with respect to US economy. Nevertheless, the rupee is at present the strongest currency in Asia.
The strength of rupee has seriously hit exporters. Wipro, the 3rd largest software exporter, had lower margins than expected. The IT industry fears there will be no pay hikes for a next few quarters. However, employees of companies like Capgemini that has its client base mainly in Europe need not worry. On the other hand, Indian IT firms having a dollar-dominated client base are badly hit. These companies have started expanding their markets to reduce dependence on a single market i.e. US.
