The monsoon winds that hit the western coast of India bang on the due date have, true to their tradition, brought good tidings: the month of June was a witness to two good things that happened on the monetary front. First, the most important: inflation has dipped to a 13-month low of 4.28% for the week ended June 9, as against 5.29% of the corresponding week of the previous year, from a high of 6.56% as on March 17th of this year. And all kudos to the Reserve Bank of India (RBI) for so splendidly taming it, that too, in such a short span.

One of the notable contributors to checkmating the rising inflation is RBI's deliberate and conscious decision to withdraw from its currency market interventions that has seen the rupee appreciate by about 9% since March. Thanks to our liberalized and globalized economy, an appreciating rupee has broken the inflationary spiral. It has made the domestic prices fall in line with global prices by virtue of `import-parity-pricing'. Its impact is visible even in domestically manufactured goods such as steel, when producers invoiced their prices by multiplying international prices by the prevailing exchange rate.

Similarly, the prices of raw material of different industries have also fallen considerably along with the fall in dollar price, although there was a lag of about 8-9 weeks in the fall in prices of their ultimate end products. An appreciating rupee has also resulted in a dip in exports, which means a fall in demand for the domestically manufactured goods, and which in turn means a fall in domestic prices. Over and above all this, an appreciating rupee did a fat lot of good for imports: they have become cheap.

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