Real-life is complex...

Analysts are wondering that even after 50 basis points cut in the repo-rate and increase in money-supply has not depreciated the rupee (in INDIA) as explained in the economics text-books... Nevertheless, the same is true for inflation... because inflation and inflationary expectations are down even after increase in money-supply... But, it is true that inflation and depreciation have not been increased by higher money-supply... This discrepancy in the text-book and real life situation might be ascribed to the conditions under which theory has been constructed... Real-life situation is different and far more complex because of a variety of variables... Nonetheless, we are here talking about a real situation in INDIA... where even a higher money-supply has resulted in a stronger currency... However, depreciation is normally worked-out through inflation... To understand this we need to understand what is depreciation or devaluation? Depreciation is higher inflation to cut the real wages compared to other countries... So, has inflation actually increased to cut real-wages? It has not... So, how depreciation might increase? Depreciation is actually the result of inflation... Unless inflation increases it would not increase depreciation and exports... Cut in real-wages makes you competitive, but inflation has not increased... Therefore, there is no depreciation in the rupee... Inflation also increases nominal exchange rate which also increases exports demand... Exports might not respond without inflation and depreciation... Moreover, slowdown in many parts of the globe has made their central-banks pursue easy money and depreciation, and increase exports which also might be a reason for a stronger rupee... Notwithstanding, if the RBI directly purchases dollar in the market, it would also increase its demand and price making it strong and the rupee depreciated... It is another way of increasing depreciation... apart from more inflation... INDIA’s strong prospects of growth when other countries are faltering has increased demand of the rupee to invest in the economy and thereby making it strong instead of depreciated...