What is rupee depreciation?
It refers to when the rupee becomes less valuable concerning foreign currency ( In floating exchange rate)
Nowadays we are seeing that the rupee is touching its newest low every day as its newest low is $1=₹79.80.
The Indian rupee has been witnessing a steady decline this year, losing more than 6% against the U.S dollar since the beginning of 2022. India’s Forex Reserve have also dropped below $600 billion.
Why Rupee is depreciating?
There are 3 main factors which lead to the Indian currency depreciating.
1. Commodities prices like Oil, gold, etc are increasing in the Global market because of the Russia Ukraine war which signifies we have to pay more Dollars to purchase. Hence our purchasing power decreased.
2. U.S monetary Policy is changing as the Federal Reserve ( Central bank of America) tighten its monetary policy by increasing interest rate to combat inflation.
As the USA increase the interest rate, Institutional investors, HNI’s, pulled out their investments from the Indian market, which leads to an outflow of dollars. Institutional investors pulled out 1,32,000 crore from the Indian market.
3. High Fiscal Deficit means there is a huge negative gap between expenditure and revenue and it gives a negative impression to foreign investors.
Indian currency is not only the single currency which is dealing with depreciation, Currencies like the Chinese yuan, South African Rand, Brazilian Real, and Euro are also depreciating against Dollar.
Effect on Stock Market?
Rupee depreciation is never good for the overall equity market. It affects foreign investors pulling out of Indian equities resulting in a decline in stock and equity mutual funds’ investments. Also, with the dip in the rupee, importing items will get more expensive.
Site Title 