The Indian rupee has risen to its highest level against the dollar since 1998, touching 39.32 to the dollar. The rupee has risen 12% against the US dollar this year. The Reserve Bank of India has intervened in the market to limit the rupee’s rise, purchasing more than $38 billion this year.
Foreign demand for Indian shares and high levels of foreign investment have helped to propel the currency upwards. The strong rupee has helped to subdue inflation by reducing the cost of imports. The appreciation, however, works against exporters, particularly those competing against China, such as textile traders.
India’s spectacular recent growth and its buoyant economic outlook is attracting investors, with foreigners buying $15.3 billion worth of Indian shares this year. The Sensex breached 18,000 on 9 October. Policymakers are worried about the threat to general financial stability from volatility in capital flows.