New Delhi: The Indian Rupee It hit another record low on Monday, touching 78.20 against the US dollar on June 13.
Rupee is down 5% since January 2022 and is primarily due to a strong US dollar index, rise in oil prices and dollar outflow from Indian equity and bond markets. Foreign institutional investors have pulled out over Rs 2,15,000 crore in the first five months of 2022, which is more than what was brought in in the 12 years between 2009 and 2021.
This sentiment is reflected in the equity markets as well. The Nifty and the 30-share BSE Sensex are down more than 10 per cent since January.
One of the reasons behind the sell-off is the rise in interest rates around the world. When interest rates start rising, FIIs start withdrawing money from riskier markets like India and the rupee’s depreciation is adding to the concerns of foreign investors. When the US dollar appreciates, it is considered negative for emerging markets.
“Weak domestic market, rising crude oil prices, strong dollar IFA Global said in a note on Sunday, and continued foreign capital outflows are expected to keep the domestic currency under pressure in the coming week.
Why did the rupee fall?
“The rupee crossed 78 today, but it is not in line with other currencies against the US dollar. Capital is flowing to safe havens like the US. The Ukraine war and the resultant supply disruptions and rising oil prices fueled growth. This has weakened the prospects and increased costs. “This has led to FIIs siphoning money and depreciating the rupee,” said Aastha Mago, associate director at Client Associates.
“The value of INR has fallen by over Rs 20 in the past decade and looking at the current scenario, it may fall further. However, in this forex situation, it is not only India that is affected, Asian and Central European currencies as well. Volatility has been observed though with respect to INR, aggressive approach of US with its economy and high inflation projection of India are the main players in this transaction. US monetary policies have seen higher rates of interest and limited supply of USD. Not only does this gap affect foreign fund outflows negatively but it also affects crude oil imports. It has already affected the stock market with Nifty and Sensex, and Indian in terms of fuel prices. The economy will continue to degrade.At this point, India needs aggressive fiscal policies to sustain the shock, said Sonam Chandwani, managing partner of KS Legal & Associates at the time.
rising dollar index
The US dollar index continues to rise as it outperforms other currencies. Established in 1973, the US Dollar Index is used to measure the value of the US currency against the Euro, Swiss Franc, Japanese Yen, Canadian Dollar, British Pound and Swedish Krona. The value of the index is a fair indication of the dollar value in global markets. If USDX goes up, it means that the US Dollar is strengthening or gaining value against other currencies.
When the value of the dollar increases, the value of all underlying assets related to the dollar also increases. These include shares of US companies, Treasury bonds, US government bonds, currency bonds and others.
An increase in the dollar index makes the dollar stronger and depreciates the value of the Indian rupee. A weak rupee makes imports costly and impacts India Inc’s profitability due to increase in cost of production. The increased cost leads to inflation, and the prices of goods and services rise, making finance difficult for the common man.
“The US Dollar Index (DXY) has risen again and is set to test the 105 level soon. As a result, emerging market (EM) currencies are falling against the dollar. Firm oil prices put pressure on these currencies. Higher oil prices result in “imported inflation” which affects corporate profitability, FII inflows, said Vijay Bhambwani, Head of Research Behavioral Technical Analysis at Equitymaster. Indian crude basket prices at 10-year highs The INR is falling because of these cumulative global events.
How does one rupee depreciate?
“If a rupee buys more dollars, the rupee has strengthened and vice versa. As investors are selling rupee-based investments for dollar-based ones, the rupee begins to depreciate, leading to the sinking of the current rupee. The reason for this is. As more investors have sold rupee-based investments in dollars, the rupee has fallen to the lowest level today. This may add to inflationary pressures, as India imports more than it exports,” said Anushka Arora , Principal and Founder, ABA Law Office.
Interest Rates and Rupee
In response to unprecedented retail inflation in the US, the US Federal Reserve is expected to increase its policy rates by about 75 basis points. When the US Fed raises interest rates, the return on dollar assets increases compared to emerging markets such as India.
Sameer Jain, Managing Partner, PSL Advocates & Solicitors said, “When the rupee depreciates, the investment value of FIIs reduces which affects the total invested amount. Sell it to protect it from loss.”
As money moves out of India, the rupee-dollar exchange rate gets affected, devaluing the rupee. Such depreciation puts considerable pressure on already high import prices of raw materials and raw materials, paving the way for higher import inflation and cost of production apart from higher retail inflation.
“When the rupee depreciates against the US dollar it has a huge impact on rising import costs as payments are made in USD. Exports, on the other hand, if receipts are in USD. Imports being costly affect local living costs. , creating more inflation,” Jain said.
India Ratings and Research in its note said rising inflation in advanced economies has prompted global central banks not only to withdraw ultra-lax monetary policy, but also to increase their policy action ahead of RBI’s policy action on May 4, 2022. Policy rates have also been increased. The US Fed raised its policy rate by 25 basis points (bps) for the first time in March 2022 after a gap of more than three years, followed by a rate hike of 50 bps in May 2022.
“As expected, monetary tightening by the US Fed has triggered portfolio investment outflows. As of May 16, foreign portfolio investors had pulled out USD 21.2 billion from India. This, in addition to a higher import bill, has led to a sudden but sudden withdrawal of USD 21.2 billion. is pressurized Indian Rupee and foreign exchange reserves,” it added.
Ind-Ra expects the Indian rupee to depreciate by 4.9 per cent and average 78.19 per USD in FY13.
crude oil
The rupee has come under more pressure since the worsening geopolitical crisis after Russia invaded Ukraine in late February. India is dependent on crude oil imports to meet 85 per cent of its energy needs. Whenever oil prices see an uptrend, it puts pressure on the rupee as India’s import bills climb higher on higher crude oil prices. On May 21, the price of Brent crude was around $110 a barrel, which has now increased to $122 a barrel. In the recent policy review last week, the RBI had assumed international oil price rates at $105 to forecast inflation.
“On the assumption of a normal monsoon and average crude oil price (Indian basket) at $105 per barrel in 2022, inflation is now projected at 6.7 per cent in 2022-23, with Q1 up 7.5 per cent; Q2 at 7.4 percent; Q3 at 6.2 percent; and Q4 at 5.8 per cent, with an equally balanced risk appetite,” RBI Governor Shaktikanta Das said while presenting the monetary policy statement last week.
If oil prices are rising, it means that imports are increasing steadily. This increases the demand for the US dollar which strengthens the dollar against the rupee and the Indian rupee continues to depreciate. Due to this the purchasing power of Indian currency in the international market ends.
FPI pull out
Foreign investors have pulled their money from the Indian stock markets and pulled out around Rs 14,000 crore in June. With this, the net outflow from equities by foreign portfolio investors (FPIs) reached Rs 1.81 lakh crore in 2022.
“This is because a large part of the changes such as economic slowdown, sharp monetary policy, supply crunch and high inflation are included in market prices, which had been consolidating over the past 7 months. And aggressive policy for central banks to be prolonged. “Inflation should remain high,” said Vinod Nair, head of research, Geojit Financial Services, for the long-term.
Foreign inflows into the equity market is one of the determining factors for the strength of the rupee. Whenever foreign investors become net sellers, the rupee depreciates. In June 2013, fearing an easing of quantitative easing by the US Federal Reserve, FIIs pulled out over $7.5 billion from Indian markets, causing the rupee to fall 6%.
“A falling rupee affects FIIs as it reduces their net earnings in both the stock and bond markets. When a foreign investor invests Rs 60,000 in rupee, it yields 8% per annum. At the time of investment, the US dollar is Rs. 60. Hence, his investment was $1,000, on which he earned $80 (at 8%) as interest. Now, if the dollar is on redemption of Rs.70, i.e. Rs. has depreciated, then his investment This would reduce his interest income to $68. The value of his investments would be $925 at the end of the year, a loss of 7.5% overall. With the value of his investments declining, foreign investors engaged in distress selling There may be money. Securities explains.
Rupee is down 5% since January 2022 and is primarily due to a strong US dollar index, rise in oil prices and dollar outflow from Indian equity and bond markets. Foreign institutional investors have pulled out over Rs 2,15,000 crore in the first five months of 2022, which is more than what was brought in in the 12 years between 2009 and 2021.
This sentiment is reflected in the equity markets as well. The Nifty and the 30-share BSE Sensex are down more than 10 per cent since January.
One of the reasons behind the sell-off is the rise in interest rates around the world. When interest rates start rising, FIIs start withdrawing money from riskier markets like India and the rupee’s depreciation is adding to the concerns of foreign investors. When the US dollar appreciates, it is considered negative for emerging markets.
“Weak domestic market, rising crude oil prices, strong dollar IFA Global said in a note on Sunday, and continued foreign capital outflows are expected to keep the domestic currency under pressure in the coming week.
Why did the rupee fall?
“The rupee crossed 78 today, but it is not in line with other currencies against the US dollar. Capital is flowing to safe havens like the US. The Ukraine war and the resultant supply disruptions and rising oil prices fueled growth. This has weakened the prospects and increased costs. “This has led to FIIs siphoning money and depreciating the rupee,” said Aastha Mago, associate director at Client Associates.
“The value of INR has fallen by over Rs 20 in the past decade and looking at the current scenario, it may fall further. However, in this forex situation, it is not only India that is affected, Asian and Central European currencies as well. Volatility has been observed though with respect to INR, aggressive approach of US with its economy and high inflation projection of India are the main players in this transaction. US monetary policies have seen higher rates of interest and limited supply of USD. Not only does this gap affect foreign fund outflows negatively but it also affects crude oil imports. It has already affected the stock market with Nifty and Sensex, and Indian in terms of fuel prices. The economy will continue to degrade.At this point, India needs aggressive fiscal policies to sustain the shock, said Sonam Chandwani, managing partner of KS Legal & Associates at the time.
rising dollar index
The US dollar index continues to rise as it outperforms other currencies. Established in 1973, the US Dollar Index is used to measure the value of the US currency against the Euro, Swiss Franc, Japanese Yen, Canadian Dollar, British Pound and Swedish Krona. The value of the index is a fair indication of the dollar value in global markets. If USDX goes up, it means that the US Dollar is strengthening or gaining value against other currencies.
When the value of the dollar increases, the value of all underlying assets related to the dollar also increases. These include shares of US companies, Treasury bonds, US government bonds, currency bonds and others.
An increase in the dollar index makes the dollar stronger and depreciates the value of the Indian rupee. A weak rupee makes imports costly and impacts India Inc’s profitability due to increase in cost of production. The increased cost leads to inflation, and the prices of goods and services rise, making finance difficult for the common man.
“The US Dollar Index (DXY) has risen again and is set to test the 105 level soon. As a result, emerging market (EM) currencies are falling against the dollar. Firm oil prices put pressure on these currencies. Higher oil prices result in “imported inflation” which affects corporate profitability, FII inflows, said Vijay Bhambwani, Head of Research Behavioral Technical Analysis at Equitymaster. Indian crude basket prices at 10-year highs The INR is falling because of these cumulative global events.
How does one rupee depreciate?
“If a rupee buys more dollars, the rupee has strengthened and vice versa. As investors are selling rupee-based investments for dollar-based ones, the rupee begins to depreciate, leading to the sinking of the current rupee. The reason for this is. As more investors have sold rupee-based investments in dollars, the rupee has fallen to the lowest level today. This may add to inflationary pressures, as India imports more than it exports,” said Anushka Arora , Principal and Founder, ABA Law Office.
Interest Rates and Rupee
In response to unprecedented retail inflation in the US, the US Federal Reserve is expected to increase its policy rates by about 75 basis points. When the US Fed raises interest rates, the return on dollar assets increases compared to emerging markets such as India.
Sameer Jain, Managing Partner, PSL Advocates & Solicitors said, “When the rupee depreciates, the investment value of FIIs reduces which affects the total invested amount. Sell it to protect it from loss.”
As money moves out of India, the rupee-dollar exchange rate gets affected, devaluing the rupee. Such depreciation puts considerable pressure on already high import prices of raw materials and raw materials, paving the way for higher import inflation and cost of production apart from higher retail inflation.
“When the rupee depreciates against the US dollar it has a huge impact on rising import costs as payments are made in USD. Exports, on the other hand, if receipts are in USD. Imports being costly affect local living costs. , creating more inflation,” Jain said.
India Ratings and Research in its note said rising inflation in advanced economies has prompted global central banks not only to withdraw ultra-lax monetary policy, but also to increase their policy action ahead of RBI’s policy action on May 4, 2022. Policy rates have also been increased. The US Fed raised its policy rate by 25 basis points (bps) for the first time in March 2022 after a gap of more than three years, followed by a rate hike of 50 bps in May 2022.
“As expected, monetary tightening by the US Fed has triggered portfolio investment outflows. As of May 16, foreign portfolio investors had pulled out USD 21.2 billion from India. This, in addition to a higher import bill, has led to a sudden but sudden withdrawal of USD 21.2 billion. is pressurized Indian Rupee and foreign exchange reserves,” it added.
Ind-Ra expects the Indian rupee to depreciate by 4.9 per cent and average 78.19 per USD in FY13.
crude oil
The rupee has come under more pressure since the worsening geopolitical crisis after Russia invaded Ukraine in late February. India is dependent on crude oil imports to meet 85 per cent of its energy needs. Whenever oil prices see an uptrend, it puts pressure on the rupee as India’s import bills climb higher on higher crude oil prices. On May 21, the price of Brent crude was around $110 a barrel, which has now increased to $122 a barrel. In the recent policy review last week, the RBI had assumed international oil price rates at $105 to forecast inflation.
“On the assumption of a normal monsoon and average crude oil price (Indian basket) at $105 per barrel in 2022, inflation is now projected at 6.7 per cent in 2022-23, with Q1 up 7.5 per cent; Q2 at 7.4 percent; Q3 at 6.2 percent; and Q4 at 5.8 per cent, with an equally balanced risk appetite,” RBI Governor Shaktikanta Das said while presenting the monetary policy statement last week.
If oil prices are rising, it means that imports are increasing steadily. This increases the demand for the US dollar which strengthens the dollar against the rupee and the Indian rupee continues to depreciate. Due to this the purchasing power of Indian currency in the international market ends.
FPI pull out
Foreign investors have pulled their money from the Indian stock markets and pulled out around Rs 14,000 crore in June. With this, the net outflow from equities by foreign portfolio investors (FPIs) reached Rs 1.81 lakh crore in 2022.
“This is because a large part of the changes such as economic slowdown, sharp monetary policy, supply crunch and high inflation are included in market prices, which had been consolidating over the past 7 months. And aggressive policy for central banks to be prolonged. “Inflation should remain high,” said Vinod Nair, head of research, Geojit Financial Services, for the long-term.
Foreign inflows into the equity market is one of the determining factors for the strength of the rupee. Whenever foreign investors become net sellers, the rupee depreciates. In June 2013, fearing an easing of quantitative easing by the US Federal Reserve, FIIs pulled out over $7.5 billion from Indian markets, causing the rupee to fall 6%.
“A falling rupee affects FIIs as it reduces their net earnings in both the stock and bond markets. When a foreign investor invests Rs 60,000 in rupee, it yields 8% per annum. At the time of investment, the US dollar is Rs. 60. Hence, his investment was $1,000, on which he earned $80 (at 8%) as interest. Now, if the dollar is on redemption of Rs.70, i.e. Rs. has depreciated, then his investment This would reduce his interest income to $68. The value of his investments would be $925 at the end of the year, a loss of 7.5% overall. With the value of his investments declining, foreign investors engaged in distress selling There may be money. Securities explains.