NEW DELHI: The Indian currency fell below the 80 mark against the US dollar for the eighth consecutive session on Tuesday.
The rupee was trading at 79.93 at 9.31 am after breaking the 80 mark against the US dollar for the first time in the interbank forex market. It fell to 80.06 against the dollar in early trade.
The unit had ended at 79.97 on Monday.
The US dollar extended its rally and hovered above a one-week low against major peers overnight as markets lowered odds of a one percent rate hike this month.
The local currency has lost more than 7 percent since the beginning of this year. It was at Rs 78.94 per dollar till June 30 and fell sharply to touch Rs 80 level in the next few sessions.
If we compare with historical data, since December 2014 the value of rupee has declined by 63.33 against the dollar on December 2014 to 80.06 today i.e. a decline of 26.27 per cent.
However, the loss of the rupee meant gains for the US dollar. In fact, the US currency has had a wonderful pullback. Since the beginning of the year, it has gained about 8 per cent.
On the other hand, a rising dollar is certainly not a favorable scenario for the Indian rupee. The rupee has been faltering since the beginning of the year and has fallen 7.6 per cent so far.
The surprise rate hike by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) last month could not stop the rupee’s fall as the country’s June trade deficit hit a record high as the current account deficit came to the fore. Which increased the concern. In fact, it seems that volatility has increased.
What happened due to depreciation of rupee
The geopolitical crisis and associated uncertainties in the wake of the Russo-Ukraine war have added to the woes of most economies, at a time when they were looking to recover from the slowdown caused by the Covid-19 in the past two years.
Amid concerns over growth, higher global crude oil prices and rising inflation, central banks of most major economies are stumbling to halt their currency’s depreciation against the US dollar.
The tightening of such global financial conditions amid Russia’s invasion of Ukraine is the main reason for the weakening of the Indian rupee.
Besides, outflow of foreign portfolio capital is also a major reason for depreciation in Indian currency. Foreign portfolio investors (FPIs) have pulled out around $14 billion from Indian equity markets so far in 2022-23.
It should be noted that monetary tightening in advanced economies, particularly in the United States, causes foreign investors to withdraw funds from emerging markets.
The US Federal Reserve has already started raising key interest rates to contain inflation, which rose to 9 per cent last month.
A higher inflation reading fueled fears that the Fed could raise interest rates by 100 basis points at its policy-setting meeting later this month.
how can it affect you
The primary and immediate impact of rupee depreciation falls on importers as they need to spend more for the same quantity and price.
The basket of Indian imports includes crude oil, coal, plastic materials, chemicals, electronic goods, vegetable oils, fertilisers, machinery, gold, pearls, precious and semi-precious stones and iron and steel.
A fall in the rupee will make importing goods costlier. Not just oil but electronic goods like mobile phones, some cars and appliances are likely to be expensive.
The depreciation of the rupee can also have an impact on the cost of households as some items may become costly.
During this time the amount of fees for those wishing to study abroad will increase as a dollar will now cost more against the rupee than before. Prospective students or even existing students may face a hike in their expenses.
In terms of remittances, or people living abroad send back home to their families in India, it will cost more because they will be remitting more in terms of Rs.
Another major impact of the rupee depreciation can be felt on the tourism sector. With Covid-19 cases under control, many people would like to resume their foreign travel plans. Such people can spend a lot more than they were a few days ago.
On the other hand, exports from India will become cheaper. This is a boon for the exporters as they get more rupees against dollar.
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