The rupee on Wednesday declined 11 paise to hit a fresh all-time low of 78.96 against the US dollar in the opening trade. The domestic currency has touched record low levels multiple times in the past few months, due to a consistent outflow of foreign investments. FPIs have so far withdrawn Rs 2,69,424 crore since October 2021, the month since when foreign investments have been witnessing continuous outflow.
The Continuous Fall In Rupee & Its Reason
The rupee has seen volatility in the past few months. The local currency had stood at 73.77 to a dollar on January 12, 2022, and since then it has fallen by a significant about Rs 5 and touched 78.96 on Wednesday. However, the fall has not been continuous since January 12. First, it weakened between January 12 and March 8 to hit 77.13 and then started strengthening till April 5 to touch 75.23 to a dollar. Since April 5, the rupee has seen a continuous fall and has touched all-time lows multiple times since then.
The main reason for falling the rupee in the past few months is the continuous outflow of dollars due to the exit of foreign portfolio investors (FPIs). FPIs have been pulling out their money from India and moving to the US for safe haven investments amid global uncertainities and tight monetary policy by the US Federal Reserve. The fall is also attributed to surging crude oil prices and general dollar strength in the past few months.
Rahul Kalantri, vice-president (commodities) of Mehta Equities, said, “The dollar index gained and crossed the 104 mark again amid talks of a further rate hike by the US Fed in its July meetings and settled at 104.273 with a gain of 0.55 per cent on Tuesday. The dollar-rupee July 27 futures contract also settled on a positive note at 79.08 with a gain of 0.59 per cent. The US economic data released on Tuesday was also disappointing and supported safe-haven buying of the dollar.”
What’s Its Impact on You?
Inflation: The fall in the rupee makes imports costlier and stokes inflation in the country. The retail inflation in India is already hovering above seven per cent, which is out of the RBI’s comfort zone of 2-6 per cent. Having dependence of imports, sectors such as fast-moving consumer goods (FMCG), metal and petrol, among others, are at the receiving end and they may see rise in prices due to the continued fall in the rupee. Study in abroad and foreign trips also get costlier due to rupee fall as you have to shell out more rupees to get dollars.
Investments: Due to high inflation, the overall returns of investors get affected. Also, as the rupee falls, import sectors feel stressed on their costs, which affects their returns. V K Vijayakumar, chief investment strategist at Geojit Financial Services, has said the rupee depreciation is good for export sectors, particularly IT (information technology) companies. Pharmaceutical exporters, speciality chemicals and textiles will also gain. However, sectors such as fast-moving consumer goods (FMCG), metal and banking, among others, may see negative impact.
The Prospects
Kalantri said, “We expect the dollar index to remain volatile this week and expect to trade in the range of 103.20-104.70. FII selling in the domestic markets is also pressuring the rupee. Crude oil prices also gained and WTI crossed $112 per barrel while Brent prices crossed $116 per barrel which also pushed the rupee lower. We expect the rupee to remain volatile this week and could test 79.30 levels.”
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