Rupee falls to fresh all-time low of 82.69 in early trade; how does it hurt you | Explained

The rupee depreciated 39 paise to an all-time low of 82.69 against the U.S. dollar in early trade on October 10 as elevated crude oil prices and risk-averse sentiment among investors weighed on the local unit. Moreover, a negative trend in domestic equities and firm American currency sapped investor appetite.

The depreciating rupee is definitely not a good sign for the Indian economy as it hurts the pocket of the common man. The cost of living rises as the fall in the currency leads to higher inflation. Like other markets, the money market too works on the basis of demand and supply; and that is the basic working methodology of the floating exchange rate. The money market too works on the premise of the demand and supply. Hence, if the demand for the dollar gets high, the rupee depreciates.

At the interbank foreign exchange, the rupee opened at 82.68 against the greenback, then slipped further to 82.69, registering a fall of 39 paise over its previous close. On Friday, the rupee depreciated further by 13 paise to hit a new lifetime closing low of 82.30 against the US dollar. "The double whammy of higher U.S. rates and higher crude prices is back to haunt the rupee. While the RBI was able to defend the rupee successfully through the last round of simultaneous stress on current and capital accounts by spending its reserves, this time around things are likely to be different," IFA Global Research Academy said in a note.

Outside India trips

The depreciation in the value of rupee has a direct impact on India planning a foreign visit. So this impacts both foreign trips for travellers and students planning to study abroad. Simply because, an individual will now have to shell out more Indian currency in exchange for dollars. 

How it affects individual's spending 

As discussed earlier, one of the major impacts of the depreciating rupee is on inflation. Simply put, production cost in India becomes higher as not everything that is required for the manufacturing is produced in India. Manufacturers are dependent on imports for many items, thus spending more as demand for the dollar is higher. For eg. India imports 80 per cent of crude oil to meet its demand, edible oil and other items. Retail inflation goes higher, directly affecting the customers. India also imports fertilizer, automobiles and machinery items. 

Foreign investors

Foreign institutional investors were net sellers in the capital market on Friday as they offloaded shares worth Rs 2,250.77 crore, as per exchange data. The rupee movement is closely followed in the stock market. When Rupee depreciates, foreign investors start pulling out of equity markets, triggering a big fall which could result in a decline in the valuation of companies' stocks and other equity-related investments like mutual funds. 

What's really causing the inflation? 

India’s retail inflation was at 7% in August, above the RBI’s comfort level of 6%, mainly due to higher food prices. Crude oil prices were the biggest contributors to the rise in inflation. India has been witnessing a sharp rise in the inflation rate since September last year due to a spike in crude oil prices in the international market and increase in commodity prices due to disruption in the supply chain after the start of the Russia-Ukraine war.

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World bank on India growth 

The World Bank on October 6 projected 6.5% growth rate for the Indian economy for 2022-23, a drop of one percentage point from its June 2022 projections, citing deteriorating international environment. Recently, RBI Governor Shaktikanta Das said that the central bank has zero tolerance for volatile and bumpy movement in the rupee and added that the RBI actions have helped in its smoother movement.

India's forex reserves dropped by $4.854 billion to $532.664 billion as on September 30. The reserves, which have been dipping as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments, had declined by over $8.134 billion to $537.518 billion in the previous reporting week.

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