The Hindu Business Line : What’s the impact of a strengthening rupee?

Let me answer the second part of your question first. The value of the rupee depends on the demand for the currency. If it is high the value rises and if it is low (that is, the rupee is sold), it falls. Inflation plays a role in the demand for a currency. If inflation is high, it is an indication of bad economic management and people will tend to buy less of that currency.

As for the impact of a strengthening rupee on the economy, exports are likely to fall because Indian goods suddenly get more expensive and there is likely to be less demand for them. However, on the other hand, our imports will become cheaper.

Therefore, the final impact of any rupee rise on the economy will depend on by how much exports fall and by how much imports rise. That said, this is only a rough guide and there is no clear-cut way to measure how the value of a currency affects the economy. If you primarily an exporter it hurts, and if you are primarily an importer, it helps.

Sensex and economic indicators

Is there a correlation between the Sensex and macroeconomic indicators? What are the indicators that need to be taken into consideration?

Ankita Jain

There is almost always a positive correlation between the Sensex and the general macroeconomic indicators. The reason is simple.

The Sensex level is dependent on how well companies are doing and companies will do well when other segments of the economy are looking up.

Though there are no clear-cut indicators, the ones that are generally looked at are GDP, industry and inflation rates, the interest rate level, credit and consumption growth, etc.

SUNIL RONGALA

(The author is Economist, Murugappa Group. The views are personal. Send in your queries on economics to Whackonomics@gmail.com)

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