The rupee did a merry jig in 2012,causing a great deal of trouble to companies,regulators and investors.It appreciated to 48.6 against the dollar at the beginning of the year and then went on to its life time low at 57.3 only to surge towards 51 again by October.
However,the trajectory of the rupee is downward against the dollar since July 2011 with the currency down 24%since then.
The cause for this weakness appears mainly domestic because rupee weakness is not just limited to the exchange rate against the dollar.
The Indian currency is down 22%and 25%against the Japanese yen and British pound,respectively,since July 2011.Even against the beleaguered euro,rupee has declined 12%.The rupee also recorded its life time low against all the above currencies in 2012.
Here are 5 fundamental drivers of the rupee and how they have been moving.