The reason for the fall of the rupee
The rupee has been volatile for the past few months. On January 12, 2022, the rupee exchange rate against the dollar was Rs. 73.77. Since then, our currency has fallen by Rs 5 to Rs 78.96 on Wednesday. However the fall has not been continuous since January 12th. Between January 12 and March 8, it weakened to Rs 77.13. Then it strengthened till April 5 and reached Rs 75.23 against the dollar. The rupee has been depreciating since April 5. It has hit all-time lows several times since then.
The main reason for the rupee’s fall over the past few months has been the continued outflow of dollars due to the exit of foreign portfolio investors (FPIs). Amid global uncertainties, FPIs withdrew their money from India and moved to the US for safer investments in the wake of the US Federal Reserve’s tight monetary policy. Rising crude oil prices over the past few months and the strength of the general dollar have also contributed to the rupee’s fall.
How does this affect us?
A fall in the rupee will make imports more expensive. This causes an increase in inflation in the country. Retail inflation in India is already over seven percent. Beyond the RBI’s comfort zone rating of 2-6 percent. Apart from dependence on imports, prices of products such as fast moving consumer goods (FMCG), metal, petrol will be affected by rupee fall. As a result, their prices may increase. Foreign education and foreign trips will also become more expensive due to falling rupee. Because to get dollars one has to spend more rupees.
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Total returns of investors are affected due to high inflation. Also, as the rupee depreciates, imports will come under cost pressure. The rupee affects the revenue generated from these sectors. Experts say rupee depreciation is good for export sectors, especially IT (information technology) companies. Pharmaceutical exporters, specialty chemicals and textile businesses also benefit. However, sectors like fast moving consumer goods (FMCG), metal and banking may be adversely affected.
How are the current conditions
Experts are analyzing that the dollar index will be volatile this week and will trade in the range of 103.20-104.70. FII selling in the domestic markets is currently putting pressure on the rupee. Crude oil prices are also rising. WTI crossed $112 per barrel, Brent prices crossed $116 per barrel. All these caused the depreciation of the rupee. Market experts expect the rupee to remain volatile this week as well and may touch the 79.30 level.
Tags: Indian rupee