The exchange rate of the Indian rupee (or INR) is determined by market conditions. However, in order to maintain effectiveexchange rates, the RBI actively trades in the USD/INR currency market. The rupee currency is not pegged to any particular foreign currency at a specific exchange rate. The RBI intervenes in the currency markets to maintain low volatility in exchange rates and remove excess liquidity from the economy.
Historically, the Indian rupee was a silver-based currency, while the major economies of the world were following the gold standard. The value of the rupee was severely impacted when large quantities of silver was discovered in the US and Europe. After independence, India started following a pegged exchange rate system. The country was forced to go through several rounds of devaluation from the 1960s to the early 1990s due to war and balance of payments problems. The rupee was made convertible on the current account in 1993. The Indian currency is set to be made fully convertible in phases over the five years ending 2010-2011.
In June 2008, the rupee appreciated to a ten-year high of US$39.29. The stability of the Indian economy attracted substantial foreign direct investment, while high interest rates in the country led to companies borrowing funds from abroad.
The global financial crisis exerted pressure on crude oil prices, which gradually plummeted to below $50 a barrel. Due to this, dollar inflow declined, with oil companies and investors purchasing more and more dollars. Persistent outflow of foreign funds increased the pressure on the rupee, causing it to decline. On March 5, 2009, the Indian currency depreciated to a record low of US$52.06. The US dollar's gains against other major currencies also weighed on the rupee.
At March end, the rupee stood at:
I USD = 50.6402 INR
1 Euro = 67.392 INR
1 Pound Sterling = 72.4022 INR
100 Japanese Yen = 51.3776 INR