A Stronger or Weaker INR Against USD: Market Force or Market Distortion? A Study on Recent Trends, Its Possible Reasons and Impact on Economy

Abstract

Like any other commodity, a foreign exchange rate in any economy is function of demand and supply, unless regulators controls otherwise. The demand and supply may be aggregate of formal and informal markets. Many a time, informal markets are dominant and it becomes very difficult to capture the data. The recent trend shows an appreciation in the Indian Rupee against the USD. Sapovadia noted in 2007 when Rupee was appreciating against US Dollar; “Indian Rupee stood at INR 44.90 to the USD in April 2006; it dipped to INR 40.57 in third week of May 2007. Skyrocket land prices in urban and urban periphery, rising inflation & interest rate and gossip in the town about NRIs investing in land & banking sector (through formal as well as informal channels) have drawn our attention to test whether INR becoming stronger is reason of market force or unwanted market distortion?” The recent trend since April 2018 is totally reverse and US Dollar is becoming stronger. The paper captures observation made in 2007 and subsequently compares current situation in 2018. Though new dimensions become pertinent in totally a contrast situation in 2018, still several reasons of market trend and its impact on economy remains same.