In the interbank forex market, the rupee traded at 79.93 at 9:31 am after breaking through 80 against the US dollar, a historic low for the Indian currency. At the opening of trading, it fell to 80.06 against the dollar.
On Monday, the rupiah closed at 79.97.
The US dollar continued its rally and hovered just above the one-week low hit the day before against major currencies as markets reduced the likelihood of a Federal Reserve rate hike this month.
Since the beginning of this year, the local currency has fallen by more than 7 percent. As of June 30, it stood at Rs 78.94 to the dollar and fell quickly, hitting Rs 80 over the next few sessions.
Compared to historical data, since December 2014, the value of the rupee has decreased from 63.33 against the dollar on December 31, 2014 to 80.06 today, i.e. a depreciation of 26.27%.
However, the loss of the rupee meant the rise of the US dollar. In fact, the US currency had a wonderful stretch. Since the beginning of the year, it has grown by almost 8%.
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On the other hand, a rising dollar is certainly not a favorable scenario for the Indian rupee. The rupiah has been fluctuating since the start of the year and has fallen 7.72 percent.
A surprise rate hike by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) last month failed to stem the rupee’s fall as a widening current account deficit came to the fore after the country’s trade deficit hit a record high in June level, which is cause for concern. In fact, it seems to have increased volatility.
What led to the fall of the ruble
The geopolitical crisis and associated uncertainty following the Russo-Ukrainian war has exacerbated the problems of most economies as they struggled to recover from the downturn caused by Covid-19 over the past 2 years.
Amid concerns about economic growth, high global crude oil prices and skyrocketing inflation, central banks in most major economies are struggling to keep their currencies from falling against the US dollar.
The tightening of such global financial conditions against the background of Russia’s invasion of Ukraine is the main reason for the weakening of the Indian rupee.
In addition, the outflow of foreign portfolio capital is also one of the main reasons for the depreciation of the Indian currency. Foreign Portfolio Investors (FPI) have withdrawn about $14 billion from Indian stock markets in 2022-2023.
It should be noted that monetary tightening in advanced economies, especially in the United States, tends to push foreign investors out of emerging markets.
The US Federal Reserve has already started raising key interest rates to curb inflation, which soared to 9% last month.
High inflation has raised fears that the Fed may raise interest rates by 100 basis points at its policy-making meeting later this month.
How it might affect you
From importing to exporting, traveling abroad and studying abroad, the depreciation of the rupee affects our lives in several ways.
Import will be more expensive: The primary and immediate impact of the depreciation of the rupee is on importers, as they need to spend more for the same quantity and price.
The Indian import basket includes crude oil, coal, plastics, chemicals, electronic goods, vegetable oil, fertilizers, machinery, gold, pearls, precious and semi-precious stones, iron and steel.
With the depreciation of the rupee, imports of goods will become more expensive. Not only oil, but also electronic goods such as mobile phones, some cars and household appliances are likely to rise in price.
The fall of the rupee could also affect household spending decisions as some things can become expensive.
Export boost: While imports are getting more expensive, exports from India are getting cheaper. This is good for exporters as they get more rupees in exchange for dollars.
Pay more for studying abroad: For people wishing to study abroad during this time, fees will rise as the dollar will now be worth more in rupee terms than before. Potential students, or even existing students, may experience an increase in their costs.
Foreign trips will cost more: Another major impact of the falling rupee could be felt on the tourism sector. As cases of Covid-19 remain under control, many people would like to restart their travel plans abroad. Such people may end up spending much more than a few days ago.
Additional values for money transfers: In terms of remittances or money that people living abroad send to their families back home in India, they will end up sending more in terms of rupees.
(According to agencies)
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