Rupee has undergone appreciation against US Dollar in 2017 for the first year since 2010. The domestic currency witnessed 6.34 % during the year and ended at 63.87 against the dollar. In 2010, the rupee recorded an appreciation of 4.07%. two factors have contributed to the appreciation of the currency in 2017.
- The weakness of dollar
- Capital inflows into the debt market.
Inflow into the debt market was $23 billion in 2017 that was the highest since 2002. Since the inflows was not due to export earnings and rather capital inflows that will produce a reverse flow in future, the appreciation impact will not be continued in the coming years.
Basics/backgrounder
- Appreciation means strengthening of the domestic currency. A movement from 1$ = Rs 67 to 1$ = Rs 64 is an example for appreciation.
- Debt market means market for government bonds, treasury bills and corporate bonds. Here, foreign investors come and buy these debt instruments. Stable political environment produces an encouragement to foreigners to invest in Indian debt instruments.
