If we did not move the rupee back to fundamental value, every 1 rupee rise in the dollar-rupee rate would costs us Rs 40,000 crores more in import costs. Assuming the rupee was undervalued by Rs 3 for a couple of years, this would mean a loss of lakhs of crores to national income.
The monetary policy function now embraces the 11 countries that have adopted the euro, while supervision remains a national responsibility. This situation introduced by the Maastricht Treaty is a novelty; it does not have historical precedents. It is the view of the ECB that the existing institutional arrangements can provide an adequate and flexible basis for safeguarding financial stability - also in the future.