What is the reason behind Indian Rupee Depreciation?

Market volatility is nothing new under the sun and with too much of variation & fall of rupee in the market have already fagged many Indians due to its effect on price rise, money inflation, increased interest rates etc.

So let’s find out the reason behind this and understand what is making Indian rupee vulnerable every time:

Fed actions:

Increase in interest rates means Indian currency is depreciating and $ is gaining more value. The foreign exchange rate for conversion of currencies completely depends on the current market scenario and the exchange rate that many countries are following. In contrast, whenever the export rises and currency inflows goes on a higher side rupee start strengthening.

Earlier most of the countries used to have fixed exchange rates but this system was discontinued by most of the countries to stay far from the risk of devaluation of currencies. Many a times countries opt for ways so to keep their currencies undervalued to promote exports.

Money Inflation:

It’s the difference between increase in money flow outside India and economic growth and this mismatch can cause a surge in inflation. Increase in money supply will pull down the economy growth.

Deflation will not be of much help, if the price of commodity and other goods doesn’t fall. Also, if you’ve fixed interest rate then you’ll have to bear higher valuation of debts and loans.

High gold import demands:

When the gold price is reining cheaper, internationally, most of the Indians hover on buying as much as they can which ultimately cause more demand from gold importers. Hence, they are importing more gold than ever and this is causing gold price fluctuate.

Increase in demand of imported products:

The value of currency largely depends upon import and export of goods. Imported items like clothes, cosmetics, food & beverage, gadgets, automobile, etc. on which we rely. This boosts the foreign currency and rupee also falls for the same reason.

How Rupee fall will have an effect?

Indian rupee depreciation would make you pay more at petrol pumps. As India gets 80% of crude oil imported due to heavy requirements, so weaker rupee would also affect our import bill and that which global oil prices would warrant.

This also prompts oil companies to lift, petrol and diesel prices and that makes transportation costlier which will inflate the prices of most stokes and goods.

Also, it’s expected to reflect on all imported items like gadgets, gold, any electronic items. It also automatically implies on your foreign education, you’ll end up paying more for your foreign education due to the fall of Indian currency. Or Likewise, if you had planned a vacation abroad, then your air tickets, travel insurance, hotel tariffs, shopping and other additional cost would go up.

How we can get control over this?

Decrease in usage of imported items like many foreign brands for clothing, electronics we depend on every day. To an extent, if we can neutralize the buying of gold and other non-essential items then it can relax the burden on forex department and wouldn’t worsen the CAD (current account deficit), which is getting more and more murky.

Given an estimate that we siphon around approximately 30 thousand Crores abroad in exchange of products like cosmetics, food & beverages, tea, etc. Consumtion of indigenous goods and use of public transport and innovative products should be implanted to minimize the consumption of fuel and natural gases.

How to get alarmed about the Indian currency fall?

It can be guessed from a current account deficit (CAD) and foreign exchange inflow rate, inflation rate domestically, interest rates of funds and other government policies. And also depends up on other countries economy state of affairs.

By analyzing these factors one can try to get a decent idea and foresee the possible rupee fall or rise.

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