Preventing rupee volatility

Since January 2008, the rupee has seen three big trending moves. First, it dropped from Rs 39.27 per US dollar in January 2008 to Rs 52.06 in March 2009. Then it strengthened, peaking at Rs 44.03 in November 2010. Now it has slid again, to an all-time low of Rs 52.70. The gyrations have been strikingly correlated to hot flows. Portfolio investments from abroad peaked in January 2008, as did the stock market. Portfolio investment outflows started in late January 2008 and foreign institutional investors (FIIs) were net sellers until March 2009, when the rupee (and the stock market) bottomed. 

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