Historically, since December 2014, the rupee has depreciated from 63.33 to the dollar on December 31, 2014, to 80.06 today — a 26.27 percent depreciation. However, the rupee’s loss meant gains for the US dollar. In fact, the US currency has had a wonderful trend. Since the beginning of the year, it has gained almost 8 percent. Also Read: For a Few Dollars More…On the other hand, a rising dollar is certainly not a favorable scenario for the Indian rupee. The rupee has been rocking since the start of the year and is down 7.72 percent so far. A surprise rate hike by the Reserve Bank of India’s (RBI) monetary policy committee (MPC) last month failed to stem the rupee’s slide as the widening current account deficit came to the fore after the country’s trade deficit in June at a high level, raising concerns. In fact, it appears to have increased volatility. What drove the rupee down The geopolitical crisis and related uncertainties in the wake of the Russia-Ukraine war have added to the woes of most economies as they struggle to recover from the Covid-19-induced recession of the past 2 years. Amid concerns about growth, high global crude oil prices and rising inflation, central banks in most major economies are scrambling to limit their currency’s slide against the US dollar. Tightening of such global economic conditions amid Russia’s invasion of Ukraine are the main reasons for the weakening of the Indian rupee. Besides, the outflow of foreign portfolio capital is also one of the main reasons for the depreciation of the Indian currency. Foreign portfolio investors (FPIs) have withdrawn about $14 billion from India’s equity markets in 2022-2023 so far. It should be noted that monetary tightening in advanced economies, particularly the United States, tends to cause foreign investors to withdraw capital from emerging markets. The U.S. Federal Reserve has already begun raising key interest rates to tame inflation that soared to 9 percent last month. High inflation has fueled fears that the Fed may raise interest rates by a whopping 100 basis points at its policy-making meeting later this month. How it can affect you From imports to exports, traveling abroad to studying abroad, the falling rupee affects our lives in various ways. Imports to be more expensive: The primary and immediate impact of a depreciating rupee is on importers as they have to spend more for the same quantity and price. India’s import basket includes crude oil, coal, plastic material, chemicals, electronic products, vegetable oils, fertilizers, machinery, gold, pearls, precious and semi-precious stones and iron and steel. With the dip in the rupee, importing products will become more expensive. Not only oil but also electronics such as mobile phones, some cars and appliances are likely to become expensive. A falling rupee is also likely to affect household spending decisions as some things may become expensive. Boost to exports: While imports become costlier, exports from India will become cheaper. It is a boon for exporters as they get more rupees in exchange for dollars. Pay more for foreign studies: For people who wish to study abroad during this period, the tuition amount will increase as a dollar would now cost more in rupees than earlier. Prospective students or even existing ones may face an increase in their costs. Traveling abroad costs more: Another major impact of the falling rupee can be felt in the tourism sector. With Covid-19 cases still under control, many people would like to continue their overseas travel plans. Such people may end up spending much higher than they would have a few days back. More values for remittances: In terms of remittances, or the money that people living abroad send to their families back home in India, they will end up sending more in terms of rupee value. (With information from agencies)
