Exchange Rate

The quoting convention causes constant confusion: a rising USD/INR number means the rupee has weakened, not strengthened, because it takes more rupees to buy a dollar. India operates a managed float, where the rate is market-determined but the Reserve Bank intervenes to smooth volatility rather than to defend a level. The rate affects importers and exporters in opposite directions, and it affects investors through foreign holdings, foreign borrowing by Indian companies, and the rupee value of overseas returns. Long-run movements track inflation differentials, while short-run movements track capital flows and risk sentiment.