Why the rupee keeps losing its value and what it means for your budget

The rupee value against US dollar has always been on the low due to domestic weaknesses. But it was raised to a certain extent in the past two years. Sadly, the difference is increasing again. This time it is because of the global influence.

On May 29, the rupee’s value against the dollar lowered to Rs 56.37. It was the lowest recorded level since the last week of July 2012. In May, rupee downgraded to about 4.7 per cent.  It came to 56.17 rupee against US dollar.

If you consider the past two months from June 27, 2012, you can see that the value further fell to 8.6 per cent making it reach to 57.21 rupee. Thus, summing up the past two years, we can conclude that the rate has been depreciated to about 24.6 per cent.

Samiran Chakraborty, Managing Director and Regional Head of Research, Standard Chartered Bank, mentioned about the rupee’s current weakness as “It is more a global phenomenon than a local phenomenon.”

With the rise in the US economics, funds from all around the world resumed to come to the country. The US dollar index, which is a dollar measurement system against other important currencies like the euro is on hike lately. According to Bloomberg, on May 29, the dollar index was around 84.

Raj Majumder, Founder and CEO of Auroch Investment Manager confirm that if the index reads more than 80, it is a thumb up for dollars.

The rupee-dollar exchange rates also seem to have been influenced by some domestic factors as well in addition to the global trend. Majumder says that dollars has been in great demand lately from oil marketing companies. They are taking advantage of the weak trend in crude prices.

Companies that needs redemption for their foreign exchange borrowing, buys dollars.

How long will the current spell of weakness continue and what is its impact on the economy?

The move to the US by dropping contact to other countries has not been broken. Chakraborty says, “The process of people realigning their portfolio position is still on,”

Due to this kind of heavy influences there was a strong inflow in the month of May from foreign institutional investors. $5.1 billion worth of Indian securities was recorded to be brought by FII in the same month.

Keeping in mind its influence on inflation and monetary policy, Chakraborty further says, “That seems to be the real and present danger.”

India imports crude oil worth $150 billion annually. If the rupee value keeps on weakening, there will be a price rise in crude oil. It was recorded in April that the inflation in the Wholesale Price Index was 4.89 per cent in contrary to the Reserve Bank of India’s target of 5 per cent.

Chakraborty predicts that if the current weakness in the rupee is kept on hold, central bank will be forced to revisit its current policy of lowering interest rates. This will have an evil impact on domestic loans.