Rupee is doing fine, blame the US dollar for the crash

Rupee is doing fine, blame the US dollar for the crash

NEW DELHI: On Thursday, the rupee plunged to an all-time low breaching the 69-mark. The last record low was 68.86, on November 24, 2016.

However, a little number crunching will show that there is not much to worry about. The fact of the matter is that dollar has been rising against most currencies and not just rupee.

The rupee has fallen much less against currencies other than the US dollar. It fell 8.2 per cent against the US dollar this year compared to 6.2 per cent against Chinese Renminbi, 4.9 per cent against pound, 4.3 per cent against Euro and just 1.7 per cent against the Australian dollar.

Why the fall anyway?

As crude oil price rises, Indian oil companies need more dollars to buy (and banks more to lend). The rising oil prices put pressure on the rupee

India being a net importer, needs more and more dollars every year. Coupled with the fact that investments from abroad have slowed and fewer dollars are coming in, it is natural to have a weakening rupee.

Is it all good then?

While a weak rupee will make our imports costlier and in turn result in inflationary pressure in the markets, our foreign exchange reserves of over $410 billion are more than enough to take care of emergencies.

Moreover, India’s credit rating is stable which means it will still be high on investors’ list.

Also, our current account deficit (CAD) — the difference between what we spend on imports and earn from exports — is still manageable albeit rising from 0.6 per cent of the gross domestic product (GDP) in 2016-17 to 1.9 per cent of the GDP in 2017-18.

 

Leave a Reply

Your email address will not be published.