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After a long steady climb upwards for over a year, the rupee seemed to be depreciating against the dollar just after mid-year.

From Rs 43.37 to a dollar on August 1, the currency steadily slipped to 43.92 on September 14, 44.3 on October 3 and now to 45.84 (November 23). Some analysts, mainly foreign, have hinted at a lower band of 48 in the next few months. Does this mean that foreign investors with their deep wallets have found better pastures to graze? Will the stockmarket fall back to its mundane levels? Is the party finally, finally over?

Prompted by the falling rupee, the FIIs were net sellers of equities worth over Rs 2,250 crore in October. High growth and rising external deficits should continue to put pressure on the rupee, which could in turn lead to self-reinforcing capital outflows from equity and cash markets, forcing the currency down further. The virtuous cycle of strong flows, low rates, rising consumption, higher growth and strong corporate fundamentals will likely end.But the RBI is okay with rupee's decline, has hardly intervened by selling dollars. Nor has it talked it up with rhetoric.

The India story is still strong and moving investor hearts. As a result, the long-term tendency of the rupee is to appreciate. Clearly, the recent gyrations of the rupee are a result of allowing market forces to take over, especially the build-up of a current account deficit, and partly owing to build-up of seasonal expectations like the arrival of harvests, festival demand and FII profitbooking. It's also a way of the RBI to test its resilience.