Over the last couple of months, the Indian rupee has lost value against the American dollar. In early July 2017, one dollar was worth around Rs 68.75. Currently, one dollar is worth around Rs. 74. 16 Hence, one dollar buys more rupees compared to the past. Thus, the rupee has lost in value against the dollar.
Five key reasons for the fall of rupee against the US dollar:
- Trade war fears: Increasing tensions between the world’s two-largest economies — the US and China — has kept investors on edge amidst fears of global trade war. “In the near term, the rupee is likely to be under pressure as oil prices continue to remain high, capital outflows from emerging economies continue and trade war tensions keep markets jittery,” said HDFC Bank analysts.
- Increasing oil prices: Higher oil prices also led to a fall in the rupee. “A sharp fall in the rupee is a panic reaction in response to oil price rise and caution by the Reserve Bank of India on the NPA (non-performing assets) situation in banks in its recently released financial stability report,” said Deepak Jasani, Head of Retail Research at HDFC Securities.
- Emerging markets exchange rates: It is to be noted that rupee depreciation is in line with emerging market exchange rates, which were largely fed in through dollar strength. A divergence between US dollar appreciation and a moderation in Euro may have amplified the dollar strength, an effect of which reinforced rupee’s depreciation, said Anis Chakravarty, partner and lead economist, Deloitte India.
“Separately, monetary policy announcements by the US Federal Reserve may have further led to investment re-routing with a derived pressure on rupee valuation. In the period ahead, expectations of three rate hikes by Fed this year is likely to define the path that rupee can be expected to take.”
- Macro-economic situation: Foreign Institutional Investors (FIIS) have sold over Rs. 40,000 crore in debt and equity so far this year. “…A wider current account deficit and continuous outflow from FIIs pushed the currency lower,” said Rahul Sharma, Senior Research Analyst at Equity99.
- Other currencies: Most other Asian currencies also edged down as the trade dispute between the United States and China kept investors on edge. The rupee has shed 7.7 per cent this year, making it the worst performing currency in Asia, followed closely by the Philippine peso.
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