.......Answering this will inevitably involve an assessment of the rupee’s fair value. While there are different approaches to estimating an equilibrium exchange rate, ultimately what matters is a country’s growth (productivity) and inflation differentials vis-à-vis its trading partners. History has shown that countries that have high growth differentials vis-à-vis their trading partners experience a real appreciation of their currencies. That real appreciation can be manifested either through higher inflation or an appreciation of the nominal exchange rate. Therefore, the higher the inflation differential, the lower will be the nominal appreciation (or the greater will be the depreciation!)..........
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