OK, the plunging rupee is the big economics story of the day, and I’m trying to get up to speed on the issues. My immediate question, however, is why the panic?

Yes, the rupee is down a lot in a short time — along with other emerging market currencies. In fact, its fluctuations are small compared with the obvious comparator, Brazil:

Photo

(The BIS numbers only go up through July, and I estimated the last month from the dollar-rupee rate.)

We more or less know the story here. First, advanced countries plunged into a prolonged slump, leading to very low interest rates; capital flooded into emerging markets, causing currency appreciation (or, in the case of China, real appreciation via inflation). Then markets began to realize that they had overshot, and hints of recovery in advanced countries led to a rise in long-term rates, and down we went. (I don’t think QE has much to do with it, although your mileage may vary.)

So the recent decline is sharp. But should India panic?

This would be scary if India was like the Asian crisis countries of 1997-1998 or Argentina in 2001, with large amounts of debt denominated in foreign currency. But unless I’m misreading the data, it isn’t:

Photo

Now, the depreciation of the rupee will presumably lead to a spike in inflation — but it should be temporary.

So at first examination this doesn’t look like as big a deal as some headlines are suggesting. What am I missing?