The Indian rupee further extended the fall to mark a fresh all-time low of 84.37 against the US dollar on Friday. Its worst weekly fall since May, the rupee weakened by 5 paise. The rupee also touched 84.38 during the day before settling at its lowest level.
The factors despite which the rupee can be said to have depreciated include:
- Global Economic Uncertainty: The sustained turmoil in development, across the Russia-Ukraine conflict and rising inflation that is trending upwards, has created a risk-off environment for investors—a surge in demand for the US dollar as a safe-haven currency.
- FPI Outflow: Continuous FPI outflows from Indian equities added to the pressure on the rupee. This is due to raising concerns about global economic growth along with rising interest rates in the US.
- Rising Crude Oil Prices: Higher oil prices raise India’s import bill, therefore putting extra pressure on the rupee.
A depreciating rupee has its consequences for different sectors of the Indian economy:
- Inflation: A weak rupee would result in high inflation since such a factor may raise the price of imports. Therefore, consumer prices and corporate profitability may get affected.
- External Debt: The servicing cost of loans for Indian firms with foreign debt will be costlier.
- Remittances: The depreciation of the rupee would favor Indian expatriates, as a remittance amount received in rupees will be worth much more.
The RBI has intervened in the foreign exchange market to stabilize the rupee. However, streaks of global factors have limited the central bank’s ability to stem the decline. The rupee’s outlook remains uncertain for the future. It could further face pressure if the global economic situation worsens or oil prices keep going up. However, if it is presumed that global growth prospects are going to improve and the oil price stabilizes, the rupee may strengthen.
