Rather like Goldilocks, commentators on the Indian rupee don’t like the value of the currency too low or too high—they would like it just right. Thus, when the rupee is weak, there are complaints that it is too weak; with a strong rupee, there are complaints that it is too strong. It is not that the rupee is too strong relative to the US dollar, but rather that the US dollar is weak—relative to a wide range of currencies, not just the rupee. The real story is thus of dollar weakness, not rupee strength, and this turns the analysis on its head. The RBI’s monetary policy committee is correctly focused on achieving the inflation-target mandate, and ought not to get distracted by the red herring that a strong rupee is hurting the economy.

Source: Mint August 27, 2017 17:37 UTC