Rupee Fall as compare to USD became a norm now a days. The rupee plunged to a 19-month low on June 27. It fell to 68.67 the lowest level since November 30, 2016 before erasing losses to close at 68.63 against the dollar. The Reserve Bank of India is said to have interfered to stop the local unit’s sharp fall against the dollar.
Trade tensions and fall in Chinese currency (yuan) is putting pressure on emerging market currencies including the rupee. The steep spike in oil prices overnight after US demanded its allies to stop buying oil from Iran is also weighing on the rupee levels.
While the supply of dollars will continue to be a problem, the demand for them will continue to remain high. A major demand for dollars will come from companies which have raised loans in dollars over the last few years and now need to repay them.A lot of companies have raised foreign loans over the last few years simply because the interest rates have been lower outside India than in India. These companies will need dollars to repay their foreign loans as they mature.This is simply because as the rupee depreciates against the dollar it takes a greater amount of rupees to buy dollars.The trouble is that if a lot of companies decide to pay loans then it will add to the demand for the dollar and thus put further pressure on the rupee.
Increasing tensions between the world’s two-largest economies -the US and China has kept investors on edge arising of fears of global trade war. 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 non-performing assets.
The Chinese yuan hit a six month low while other emerging currencies too bled. The rupee is one of the worst performing currencies among emerging market countries. It is to be noted that rupee depreciation is in line with emerging market exchange rates which were largely fed in through dollar strength.
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.
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.
India being a net crude oil importer, a sharp rise in prices can affect the import bill and disrupt the fiscal position. India’s current-account deficit which has already widened is reportedly forecast to hit its highest level in the next six years.
Crack your next Interview Prepare for Interviews with Experts Online CLICK HERE