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Indian rupee is at an all-time low of 80 per US dollar. How will it impact you?

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Dristi Sharma
Dristi SharmaJul 19, 2022 | 19:37

Indian rupee is at an all-time low of 80 per US dollar. How will it impact you?

The Indian rupee hit a record low by falling to 80.01 against the US dollar on Tuesday. The rupee had closed at 79.97 on Monday.

Like most Asian currencies, the rupee has been falling in recent months as expectations of aggressive US Federal Reserve policy tightening to curb stubborn inflation prompt investors to dump riskier assets, reported Reuters.

Not just Asia, currencies all round the world have been struggling against the USD. 1 euro fell to less than 1 USD last week. That's the first time in 2 decades.

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Rupee's previous declines

There is, however, nothing sudden or unpredictable about this downfall. The rupee's previous trends of decline were foreseen by experts, and this downfall was expected. 

Here is a graph that shows the rupee’s downfall over the past month (tap on the boxes to know the average value of the INR on the respective date):

Reasons for the downfall: A simple supply-and-demand chain determines the value of the Indian rupee against the US dollar. The value of the Indian rupee is inversely proportional to the demand for the US dollar. With the dollar having gained over 10% this year and now reaching a 20-year high, imagine how the rupee is doing. 

Some other reasons for the downfall are listed below:

Disruption in the supply chain due to the Russia-Ukraine war: Whenever a country imports more than it exports, the dollar becomes more in demand, causing the indigenous currency to lose its value in relation to the dollar, such as the rupee in India.

  • Due to the war in Ukraine, the supply chains continue to be disrupted around the world. As a result of the war, crude oil prices have also risen significantly.
  • There is a direct relationship between crude oil prices and inflation in this economy. The one causes the other to grow, ie, the higher the crude oil prices, the higher the inflation, which in turn causes consumers to stifle their spending and causes low consumer demand. 
  • In turn, this results in low GST collections and chaos that can only be resolved by increasing the interest rate for foreign investors.
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Out-flows of foreign portfolio investors: As interest rates increased, investors began to pull out of Indian markets. Now, in order to understand the impact of Foreign Portfolio Investors (FPIs) pulling out of the market, let's examine some numbers:

  • As of June 30, FPIs, which own 19.5% of the market capitalisation, have pulled out a total of Rs 2,60,000 crore ($33 billion) since October 2021.
  • The RBI has also had difficulty controlling the depreciation of the rupee due to the decrease in forex reserves.  

How does it affect us? It is expected that this downfall will continue to cause the rupee to depreciate at 82 for this quarter.

  • The primary impact will be on importers who have to shell out more Indian currency for the same product.  
  • It will lead to inflation and we will see higher prices of not only oil but also appliances like laptops, computers and mobile phones. 
  • The rupee interest for foreign loans will also rise, making education loans more expensive. 
  • The travel sector will also be impacted; especially foreign trips, which will burn a deep hole in our pockets.
Last updated: July 19, 2022 | 19:52
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