Rupee's journey from 40 to 80 per dollar

 The rupee once saw times where its value appreciated from 49 to 40 against the dollar between 2002 and 2007 and then happened the financial crisis which tipped everything downhill. The rupee then went past 52 in no time and has been depreciating ever since. The rupee has since shown about 5 per cent rate of depreciation per annum. It has depreciated in line with the interest rate differential between India and the US.

Interest rate differential is the difference of interest rates of two different currencies. The interest rate of a currency is the cost of borrowing funds in an economy. When you buy a currency that has higher interest rate against a currency that has lower interest rates you receive payments for the difference. This is called a carry trade. 

Some of the years where the rupee has depreciated the most were 2008 with -23.8 per cent, 2013 with -12.4 per cent, 2018 with -9.2 per cent. It fared well during 2017 with +6 per cent. Though the rupee has weakened up to 50 percent during the last decade it has developed strong resilience to external shocks over these years.

On the Balance of Payments front before Covid and the war the trade deficit stabilized at 5-5.5 per cent of GDP and the current account deficit at 0.5-1 per cent of GDP, which is considered to be manageable. Our services-sector exports grew to hit $250 billion mark. Foreign direct investments have grew to hit $83.5 billion in FY22. India continues to be the biggest recipient of foreign remittances. 

The build-up of forex during the good times is proving to be helpful in now times of BoP stress. There has been a steady decline in the exchange rate volatility. A stable rupee reduces the risk that foreign investors expect when investing in Indian assets.