The rupee reached 70.82 against the US dollar on Thursday, hitting another historic low. The currency has been weakening sharply in recent days and is inching to the 71 mark.
forex dealers on Thursday when the rupee fell to 70.82 said that the fall is addition to the strong month-end demand for the American currency, buying by importers, mainly oil refiners in view of surging crude oil prices and capital outflows, weighed on the domestic currency.
Normally, if there is a fluctuation in the currency, it does not last for long. In the short term, if there's a fluctuation in the currency exchange rates, it can be because of the supply and demand gap.
For example, if there is a high demand for the Indian rupee in the US, then the demanded currency will appreciate, that is becoming more valuable and expensive and fewer rupees can buy one unit of foreign currency, against the dollar. Therefore, if there is a nominal or numerical decrease in the rupee, the currency is becoming stronger.
Vice versa is also true. If there is more demand for US dollars, then the Indian rupee will depreciate, that is losing its value and becoming cheaper. Therefore, if there is a nominal or numerical increase in the rupee, the currency is becoming weaker.
The weakness in the currency can be due to many reasons but, going by the recent data in the rupee, the reason can be more than just a supply and demand gap.
Here are some of the other reasons why the rupee has been weak: Rising crude prices
The rise in crude oil prices has a huge impact on the depreciating rupee. One of the major reasons for this is, India being the second largest consumer of oil. The expensive crude prices are leading to a
rise in the prices of petrol and diesel rise and can also have an impact on the rising transportation of goods.
A fall in the rupee leads to making the imports more expensive, such as oil, among others, and exports cheaper.
There are two major global market and economic events which are making the headlines - the Turkish Lira fall and the global trade wars instigated by US President Donald Trump.
Global impact The have hurt most emerging-market currencies, not just the rupee, especially to the relatively smaller economies with weaker fundamentals such as Argentina or South Africa. One of the possible reasons for the impact of the Turkish Lira on the rupee is that investors becoming jittery in investing in emerging markets. The investors have been pulling money out of the broader emerging markets for fear that other countries, especially those with poor financial positions, will follow in Turkey's footsteps. fall in the Turkish Lira, The global trade wars, instigated by US President Donald Trump to impose import tariffs on countries, have shaken the world markets. India exports more to the US than it imports - that means India, will have to face the brunt of paying US' import tariffs. Even though India had pledged to impose retaliatory tariffs on some US goods, it still hopes that since the implementation has been delayed it can buy time for the two economies to resolve the trade dispute. Inflation and interest rates
India has been seeing a rise in its inflation, and hence, the Reserve Bank of India (RBI) has been tightening the monetary policy by increasing the key policy rates in the
last two bi-monthly meets. If the monetary policy committee of a country orders a hike in the repo rate, the economy is letting go of potential growth in order to tackle the rising inflation in the economy.
The impact of the rise in the key policy rates has shown some relief to the rising inflation, that is, two out of three major indices have shown a fall in inflation. However, the high inflation still remains to haunt the economy.Here's a look at the latest inflation numbers:
India's wholesale price index (WPI) or wholesale inflation in July 2018 fell to 5.09 percent as against 5.77 percent on a month-on-month basis. The consumer price index (CPI) inflation rate for July 2018 stood at 4.17 percent against June’s 4.9 percent, showed data by the Ministry of Statistics and Programme Implementation. The general index of industrial production (IIP) for the month of June rose 7 percent compared to last year, and stood at 127.7. Cumulative growth for the period April-June 2018 over the corresponding period of the previous year stands at 5.2 percent.