The Indian rupee has been losing value over the past few days, and on Wednesday it set a record low against the US dollar of 79.03. Analysts are divided over whether the weak fundamentals could lead to further declines in the country’s currency as a result. Since January of this year, the rupee has lost roughly 6% of its value. However, it was able to rebound from its record low on Thursday after adding 13 paise to reach 78.90 against the dollar. With the nation suffering from high inflation and the sharp rise in the cost of basic necessities, the situation is now particularly difficult for the average person.
Nirmala Sitharaman, the Union Finance Minister, has asserted that the Indian rupee is substantially better positioned than other foreign currencies against the dollar.
Why is Rupee Falling?
The value of the Indian rupee in relation to the US dollar is determined by supply and demand. The value of the Indian rupee decreases when demand for US dollars increases and vice versa.
The demand for the dollar will be larger than the supply if a nation imports more than it exports, which will cause the indigenous currency, such as the rupee in India, to lose value in relation to the dollar. The strong dollar abroad, the high price of crude oil, and international capital outflows are the key causes of the rupee’s decline these days.
Since the beginning of the year, the rupee has been losing value, particularly following supply chain delays due to the Russia-Ukraine war, global economic difficulties, inflation, and rising crude oil prices, among other problems.
How does this relate to the Dollar-Rupee Exchange?
The dollar-rupee exchange rate is altered as money leaves India, devaluing the rupee. A significant amount of pressure from this devaluation is placed on the already high import prices for oil and raw materials, opening the door to increased import inflation as well as higher manufacturing costs in addition to higher retail inflation.
In the meantime, the US Federal Reserve recently raised interest rates, and dollar assets had a higher return than those in emerging nations like India. More aggressive rate increases by the US Fed are speculated to be forthcoming, which might further weaken the value of the rupee.
Will this downward spiral continue?
Numerous analysts predict that as oil prices rise and the FII sell-off persists, the rupee will weaken much more against the dollar in the coming sessions. RBI will intervene, and the central bank has been acting to stop the free collapse. It used India’s enormous stockpile of foreign exchange reserves in May to stop the rupee from falling below Rs 77.5 against the US dollar.
How does it affect retail consumers in India?
India pays in US dollars since the nation mostly imports goods including crude oil, metals, electronics, and other goods. Now, if the rupee is weak, it will cost more to purchase the same amount of goods. In such circumstances, the cost of production and raw materials increases, passing the expense on to customers.
