On Friday, the biggest fall in the rupee against the dollar was seen in almost 4 years. Due to which the rupee closed at the level of 89.66. Which means the life time of rupee is at lower level. Due to this decline, there was a lot of fear among the currency traders and analysts of the country. If experts are to be believed, an even bigger fall in the rupee may be seen in the coming days. Some experts believe that the rupee may cross the level of 91 by the end of the year. However, in the current year the rupee has seen a decline of more than 4.50 percent. On the other hand, a decline of 1.21 percent has been seen this week.
However, the impact of falling rupee can break many dreams in the coming days. The prices of crude oil have come down in foreign markets, but due to the huge fall in the rupee, the hope of petrol and diesel becoming cheaper has ended. On the other hand, the expectations of RBI cutting interest rates in the month of December may be dashed. The biggest reason for which is imported inflation. The inflation figures are quite low, but due to the fall in the rupee, imported goods in India are likely to become expensive. Due to which inflation figures may increase in the country. A decline in foreign exchange reserves may also be seen, which is not good for the country’s economy. Let us try to understand all these things.
Biggest fall in rupee in 4 years
The rupee on Friday fell 98 paise to close at its all-time low of 89.66 against the US dollar due to heavy demand for the dollar in the domestic foreign exchange market amid widespread selling pressure in local and global stock markets and trade uncertainties. Foreign currency traders said concerns over the creation of a potential bubble around artificial intelligence technology stocks also weighed on investor sentiment. Apart from this, fresh withdrawal of foreign capital also increased the despair, he said.
The rupee opened almost flat at 88.67 on Friday at the Interbank Foreign Currency Exchange market and turned highly volatile in the afternoon session. During the day’s trading, it fluctuated between a high of 88.59 and a low of 89.66. In its biggest fall in nearly four years, the rupee fell 98 paise to finally close at 89.66 against the dollar. Earlier, the biggest one-day fall was recorded at 99 paise against the dollar on 24 February 2022. On Thursday, the rupee fell by 20 paise and closed at 88.68 against the US dollar.
How much has the rupee fallen in the current year?
If we talk about the current year, a huge decline has been seen in the rupee against the dollar. According to the data, the rupee had closed at the level of 85.64 on the last trading day of last year. Since then, there has been a decline of Rs 4.02 i.e. 4.69 percent in the rupee. Whereas after November 17, the rupee may see a decline of 1.21 percent i.e. 1.07 rupees against the dollar. If we look at the data, the rupee had closed at the level of 88.59 on November 17. According to experts, further decline in rupee against dollar may be seen in the coming days. The figure appears to be crossing the 90 level.
Will the rupee cross 91 by the end of the year?
Experts believe that the trend of falling rupee is not going to stop now. By the end of the year the rupee may reach a new level. Or according to Anuj Gupta, Director of Wealth Management, further decline in rupee may be seen. He said that by the end of the year the rupee may be seen crossing the level of 91. Giving the reason for this, he said that the way the Fed has indicated about rate pause, that period may be long. Due to which the dollar will strengthen and the rupee may weaken. Where will the rupee go in the long term? It is very difficult to make any predictions on this.
Which dreams were broken by the fall of rupee?
- Price of petrol and diesel: India is the world’s third largest crude oil importer. If the rupee depreciates against the dollar, then Indian crude oil becomes expensive even though it is cheap. Whose pressure is clearly visible on the people of the country. At present the price of crude oil is around $62. Even after that, the prices of petrol and diesel in India are equally likely to reduce because due to the fall in the rupee, the same cheap crude oil is becoming expensive for India.
- Danger of increase in inflation: The special thing is that the fall in rupee can increase the imported inflation in the country. Whenever the rupee depreciates, India has to spend more dollars to buy foreign goods. Due to which foreign goods become expensive in India, which increases the overall inflation in India. However, at present the inflation rate in the country is below 1 percent.
- Crisis on rate cut: Till some time ago many experts were predicting that RBI may cut interest rates by 0.25 percent to 0.50 percent in the month of December. But a big fall in the rupee can put an end to this idea. RBI may once again decide to hold the interest rates as a shield against the uncertainty prevailing in the foreign markets and the fall in the rupee. The last time a decline in interest rates was seen was in June. After that, interest rates were kept on hold in the policy meetings of August and October.
- There may be a decline in Forex: The effect of fall in rupee can also be seen on foreign currency reserves. There is a reason for that too. Now India will have to spend more dollars and foreign currencies to buy foreign goods. Due to which there will be an impact on India’s foreign exchange reserves. At present, India’s foreign exchange reserves are seen to be more than 692 billion dollars.
Why did the rupee fall so much?
CR Forex Advisors said in a note that the dollar surged dramatically against the Indian rupee on Friday and breached its all-time high… The sudden rise took the market completely by surprise. Unlike previous sessions, where news flow dictated price moves, this move was largely demand-driven, caused by unexpected purchases of dollars at a time when supply was low. What made this change even more impressive was that all other leading indicators remained broadly stable – the dollar index, crude oil prices, emerging market currencies, and even gold remained unchanged. This calm backdrop further reinforced that Friday’s rise in the dollar/rupee was not driven by global cues but purely due to domestic dollar demand exceeding available supply.
Fall in crude oil and rise in dollar
Anindya Banerjee, Head of Research Currency, Commodity and Interest Rate Derivatives, Kotak Securities, said the global risk-off sentiment has spread to currency markets as well, following the sharp overnight decline in cryptocurrency and AI-linked technology stocks. Banerjee said that due to sudden reduction in risky deals, pressure on the currencies of emerging markets including the Indian rupee is increasing. Adding to this pressure is the uncertainty surrounding the proposed India-US trade agreement, which markets were hoping would bring clarity on the bilateral economic outlook. With no specific time frame set, the notion still remains fragile.
Meanwhile, the dollar index, which measures the dollar’s strength against six currencies, rose 0.09 percent to 100.17. Global oil benchmark Brent crude was trading at $ 62.00 per barrel, down 2.18 percent in futures trade. On the domestic stock market front, Sensex closed at 85,231.92, down 400.76 points or 0.47 per cent, while Nifty closed at 26,068.15, down 124.00 points or 0.47 per cent. According to exchange data, foreign institutional investors sold shares worth Rs 1,766.05 crore on a net basis on Thursday.
RBI Governor told the solution
Reserve Bank of India Governor Sanjay Malhotra on Thursday said the central bank does not target any level for the rupee, and the recent fall in the rupee against the US dollar is mainly due to trade uncertainties following the imposition of tariffs by the US administration. Malhotra said at an event in the national capital that we do not target any level. Why is the rupee falling? (This) is because of demand. It is for the market to decide… It is a financial instrument, and there is demand for the dollar, and if the demand for the dollar increases, the rupee falls; And if demand for rupee increases and dollar falls, it strengthens. The Governor also expressed confidence that India will enter into a favorable trade agreement with the US, which will help in reducing pressure on the current account.