Why is Indian Rupee Kneeling to Dollar Again?

Performance of Rupee Vs Dollar is declining drastically in past 07 years from 54.78 in 2013 to 75.07 in April 2021

The rupee on 9th of April 2021, dropped sharply against the US dollar, approaching the 75 mark. The currency was trading at 74.86 per dollar at 1 p.m., down 0.33% from its previous close. The rupee has lost nearly 2.4% against the US dollar so far this year. The domestic currency opened at 74.75 against the US dollar on the interbank forex market, down 17 paise from its previous close. The domestic currency has lost 146 paise in value against the US dollar over the last four sessions. The rupee ended at 74.58 against the US dollar on the preceding day.

The RBI based its growth and inflation forecasts for the Indian economy on the assumption that the exchange rate would be Rs 72.60 per US dollar.

Why did Rupee drop To Eight-Month Low against the US dollar?

Considering the Reserve Bank of India’s (RBI) massive bond purchase programme amid inflationary concerns, the Indian rupee fell to an eight-month low against the US dollar on Friday. The domestic currency is trading on a low note, according to traders, as investors believe the central bank’s bond-buying plan will be negative for the currency due to inflationary concerns. The dollar index, which measures the strength of the greenback against a basket of six currencies, increased 0.25%to 92.305. Fears that a rapid revival of Covid cases in the country could derail the country’s economic recovery also weighed on the rupee. The rupee witnessed pressure after RBI’s announcement of $1 billion in bond purchases, the unwinding of carrying trades, the perception of a full lockdown due to rising cases, and panic buying by importers.

The cost of imports rises when the rupee falls, putting the country’s households at a disadvantage. This has a negative impact on India’s economy, which is based on imports. However, NRIs, of whom India has a large number, can profit from depreciating currency. The Reserve Bank of India (RBI) controls the supply of the rupee in the market, making it cheap or expensive.

”The Indian rupee has gone on to witness steep depreciation towards five-month lows as rising Covid-19 cases in the country have created an atmosphere of lingering uncertainty, posing risks to an already fragile state of recovery,” said Sugandha Sachdeva, Vice president, Commodity and Currency Research at Religare Broking.

Rupee Vs Dollar Since 2013 onwards {Photo Credit : Digpu News}
Performance Chart : Rupee Vs Dollar Since 2013 onwards {Photo Credit : Digpu News}

”Besides, the RBI in its monetary policy review has maintained status-quo on policy rates for the fifth consecutive meeting, amid the pressures arising from the second wave of the virus which are likely to crimp demand and hurt the domestic currency. Facing hurdle at 72.20 mark, the domestic currency has reversed course in a rather steep manner and looks poised to witness further depreciation in coming days, even as sustained portfolio inflows are still underpinning the local unit, ” Sachdeva added.

The Digpu News Bottomline

The second wave of the pandemic and lack of preparations by the government has left the ordinary citizens of India vulnerable. The healthcare infrastructure and hospital staff all over the country are collapsing amidst the staggering rise in COVID cases and death. With the double and triple mutant strains of the virus coming to fore and the vaccination rate being on the backfoot, thanks to lack of planning and execution on part of the policy makers, the virus looks to set to spend a few more months breaking our backs.

However, the worst of these blows will be felt after the effect of the second wave dies down. When the INR will take a further plunge against the US dollar and further strengthens its position of the worst-performing Asian currency of the month, we will know what a real economic crunch looks like. But one wonders, if the government learned lessons from what happened in other countries, prepared for one year and vaccinated citizens more aggressively, would we have been able to escape this impending doom?

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